Pennsylvania
CPA JOURNAL Spring 2016 | Volume 87, Number 1
Know Your Millennials
more ‌ Cloud Computing Risk Management Audit and Finance Committee Needs Alternative to the Billable Hour
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Contents Features
26 Know Your Millennials
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Michael A. Zaydon, CPA, takes a look at the status of the millennial generation within the accounting workforce, and encourages firms to understand who they are and how they will benefit CPA firms and their clients.
30 Cloud Computing: Security and Risk Management Peter J. Kaye, CPA, and Robert G. Korbeck Jr. explain how cloud computing technology can help many types of companies, but urge those who choose to take the leap to understand the implications of faulty risk management.
Pennsylvania
CPA JOURNAL Spring 2016| Volume 87, Number 1
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PRUH « Cloud Computing Risk Management Audit and Finance Committee Needs Alternative to the Billable Hour
For videos, podcasts, and special content, make sure to check out the Pennsylvania CPA Journal digital magazine and mobile app at www.picpa.org/journal.
Columns 2
PICPA News
A Note from the Chair Future Shock? Insulate Yourself by Reading the Journal
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Accounting & Assurance Be Sure to Properly Consider IT Risks in Your Audits
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State & Local Tax Pennsylvania Gridlock: Neither Side Would Budge(it)
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Business & Industry The Opportunities of Finance and Accounting Outsourcing
10 Practice Succession Planning Five Factors for the Successful Buyer 12 Practitioners Stop the Clock on Clients
16 Government/Not-for-Profit Why Not-for-Profits Need Both Audit and Finance Committees 18 Liability Lessons “But It Was the Client’s Fault” May Just Work 20 Careers & Lifestyles The Counteroffer: Six Reasons to Not Accept 21 International Tax Tax Planning for U.S. Operations of Foreign-Owned Enterprises 22 Litigation Support Why a Formal Fraud Risk Assessment Program Makes Sense
34 2015 CPA-PAC Contributors 36 Legislative News Department of Revenue Clarifies UE Deduction Issues 37 2016 Nominations Report 38 PICPA Course Listings 40 Member Spotlight Pavel Kolenda, CPA 41 Image Enhancement The Many Ways We Promote the CPA’s Image 42 Member Recognitions 47 Classifieds
23 Education Concept Mapping
14 Personal Financial Planning Verification and Coordination When Estate Planning
48 What Do You Think? Progress of Women on the March
24 Emerging CPAs Decoding Master’s Degrees
Follow us… CPA Now Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
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PUBLISHER Michael D. Colgan, CAE
A Note from the Chair
EDITORIAL STAFF EXECUTIVE EDITOR Maureen A. Renzi MANAGING EDITOR William J. Hayes PUBLICATIONS EDITOR Matthew McCann
Future Shock? Insulate Yourself by Reading the Journal
CONTRIBUTING AUTHORS Jacqueline M. Barnard Peter N. Calcara
Colleen Kuczynski
ART STAFF ART DIRECTOR Alison M. Kurowski GRAPHIC DESIGNER Matthew G. Deegan GRAPHIC DESIGNER Alexa J. Weingartner
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ith so much changing on a seemingly daily basis, sometimes it would be comforting to know the future of our profession. We could anticipate what regulations we will be expected to adhere to. We could communicate the tax changes to come to prepare our clients. Most importantly, we’d know if we will be able to fly our cars to work or still have to take the train. Of course, none of us has a crystal ball. That is where the Pennsylvania CPA Journal comes in. In these pages you will see features and columns that relate to the future – not only of the profession, but also of the people who make it so great: our fellow CPAs. In one of our features, for instance, Peter J. Kaye, CPA, and Robert G. Korbeck Jr. take a look at a topic that could revolutionize the way many firms and businesses manage their information technology (IT) infrastructures: cloud computing. “Cloud Computing: Security and Risk Management” explains for those about to take the leap the importance of risk management and the proper mitigation steps. Our Accounting & Assurance column also zeroes in on IT developments. “Be Sure to Properly Consider IT Risks in Your Audits,” by Jennifer L. CruverKibi, CPA, encourages CPA firm leaders to consider the ever-changing landscape of information technology as they prepare an audit approach. Nothing will affect the future of our profession more than making sure the right people fill all the available jobs. Our cover story examines the growing status of millennials within the profession and how to attract them. “Know Your Millennials,” by Michael A. Zaydon, CPA, speaks to the young generation’s rising prominence in accounting, and encourages firms to find out what they value and how they can benefit CPA firms and their clients.
2015-2016 EDITORIAL BOARD David D. Wagaman, chair Matthew D. Melinson John Alarcon Jennifer C. Nadzadi Jeremy M. Allen James J. Newhard Rick G. Bair Cory Ng Ibolya Balog Margaret O’Reilly-Allen Andrew M. Bernard Daria D. Palaschak Steven G. Blum John D. Rossi III Robert J. Capriotti William G. Ruffner James J. Caruso Todd A. Sacco Timothy P. Dinan Laurie A. Siebert Timothy J. Gooch James A. Stavros Douglas P. Hepburn John S. Stoner Philip G. Hirsch Lacey K. Tau Edward R. Jenkins Jr. William F. Tyler Peter J. Kaye Mary J. Welsh Ryan G. Lafferty Melissa M. Wolf Jerry J. Maginnis Michael A. Zaydon J. Stephen McNally Pennsylvania CPA Journal Spring 2016, Vol. 87, No. 1 Copyright 2016 by the Pennsylvania Institute of Certified Public Accountants Subscription Rates: Annual rate is $4 for members and $12 for nonmembers. Periodicals postage paid at Philadelphia, Pa., with additional offices in Hanover, N.H., and Bolingbrook, Ill. Publication of an advertisement in the Pennsylvania CPA Journal does not constitute an endorsement of the product or service by the PICPA. Postmaster send address changes to: Pennsylvania CPA Journal Ten Penn Center, 1801 Market St., Suite 2400 Philadelphia, PA 19103-1604 PICPA E-mails Address changes: info@picpa.org Classified ads: advertising@picpa.org Display ads: gchateauneuf@thewarrengroup.com Editorial: journal@picpa.org The Pennsylvania CPA Journal is published in March, June, September, and December. Past columns and features are archived at www.picpa.org. Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in this publication, including all features and columns, does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional. ISSN: 0746-1062
GET PUBLISHED If you are interested in submitting a column or feature to the Pennsylvania CPA Journal, please visit www.picpa.org/getpublished.
This issue’s Practitioners column also urges the accounting industry to look forward and be open to value pricing. In “Stop the Clock on Clients,” Alyzabeth R. Smith, CPA, argues that value pricing is a sensible replacement for the billable-hour format that most CPA firms currently use to charge for services – not only for employee satisfaction in a new era, but also in the interest of bolstering the bottom line. When many speak on “the future,” they tend to talk about the big picture. But the future is also personal. This edition of the magazine addresses these concerns too. Let’s start with students and emerging CPAs. The first step in advancing your personal future may be a graduate degree. If you are considering a master’s degree (or hiring someone with a master’s degree), check out the Emerging CPAs column, “Decoding Master’s Degrees,” by Robyn Lawrence, PhD, CMA, Melissa Wright, JD, and David F. Salerno, CPA, PhD. This column examines different accountingrelated master’s degrees available to both would-be and young professionals looking to further their education. Also appealing to the young professional is our intriguing Careers & Lifestyles column, “The Counteroffer: Six Reasons to Not Accept.” Its author, Mary M. Porreca, offers a collection of reasons why those who are in a position to change employers would be unwise to consider a counteroffer. We members of the Editorial Board have no relation to Nostradamus. For input on what should be covered in upcoming issues, we need you. As we begin preparations for our spring meeting, let us know what we should be covering, and we will look to squeeze it in!
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David D. Wagaman, CPA, is an associate professor of accounting at Kutztown University in Kutztown. He can be reached at dwagaman@kutztown.edu.
Accounting & Assurance Be Sure to Properly Consider IT Risks in Your Audits By Jennifer L. CruverKibi, CPA
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nformation technology (IT): the more we rely on it, the greater the impact it has when something goes wrong. It’s our job as auditors to ask “What could go wrong, and how could it affect the financial statements?” The IT world is everchanging; are you changing your audit approach along with that change?
What the Standards Say According to AU-C Section 315, Understanding the Entity and Its Environment and Assessing the Risk of Material Misstatement, the auditor should gain an understanding of the entity’s IT environment and flow of transactions related to IT in order to assess risks. AU-C 315.A64
specifically identifies risks that IT systems pose to internal control. These include reliance on systems or programs that are incorrectly processing data, unauthorized access to data resulting in destruction or improper changes, unauthorized changes to systems or programs, unauthorized changes to data in master files, and loss of data or inability to access data. The extent and nature of these risks depend on the nature and characteristics of the entity’s system. The updated 2013 COSO Framework specifically cites IT in Principle 11 (select and develop general controls over technology). Principle 11 includes the following points of focus:
• Evaluate information system design and determine if it meets operational and information-processing objectives • Evaluate whether IT system incorporates appropriate general and application controls • Evaluate design of the IT structure • Evaluate security management • Evaluate IT acquisition, development, and maintenance What Auditors Should Consider During an IT risk assessment, it is important to first evaluate the organization’s IT complexity to determine the depth of the IT risk-assessment process. If the
Sept.19-25 Start planning firm events and gather friends, family, and colleagues to give back to your community. Ideas and last year’s highlights at www.picpa.org/PICPAcares
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Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
organization has a highly sophisticated IT structure, you may want to consider having an IT specialist involved in the audit planning. Consider the following: • Complexity of the financial reporting system (commercial off-the-shelf software with no modifications vs. internally developed software) • Complexity and usage of the local area network or wide area network • Reliance on IT for financial reporting (degree of online financial transactions, heavy reliance on IT in providing products/services, etc.) • Use of multiple IT systems and whether they are integrated for financial reporting It is also pertinent that the auditor evaluate the general computer and application controls. General computer controls represent the organizational and administrative structure of the IT function. Application controls apply to the processing of individual transactions (cash receipts, payroll, etc.), and relate to the use of IT to initiate, authorize, record, process, and report financial transactions. When evaluating general computer controls, as-
sess whether there are ineffective controls, and, if so, whether this would allow for material misstatement to occur. Consider the following: • Security management – How is information protected from data loss, viruses, and so on? How often is software updated? Consider having the firm’s IT director evaluate for effectiveness. • Logical and physical access – Who has access to hardware/data, and who determines access? How is hardware maintained? How do users gain access to networks, applications, programs, data, among other elements? Are terminated employees promptly removed from access to data? Consider comparing a list of terminated employees to user access in the system with IT personnel. • Configuration management – Were there any changes made to systems or applications, and were such changes approved? Consider receiving a list of changes to computer programming related to financial transactions for evaluation.
• Segregation of duties – How is user access restricted, and who determines it? Consider reviewing who has access in the accounting software and whether such users have appropriate levels of access. This is applicable to off-the-shelf accounting software too, and should be documented in the work papers. • Backup and recovery – How are backups done, and how are they stored? If stored on a cloud via third party, who owns such backups if service were to be terminated? The evaluation of IT complexity, general controls, and application controls will assist in determining the nature and extent of testing over the IT environment. This should be documented as part of the risk assessment process. In doing so, you will be off to a good start on keeping up with your client’s use of technology. Jennifer L. CruverKibi, CPA, is a senior manager with Maher Duessel in Harrisburg. She can be reached at jcruverkibi@md-cpas.com.
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State & Local Tax Pennsylvania Gridlock: Neither Side Would Budge(it) By Steve J. Allenson, CPA, Vito A. Cosmo Jr., CPA, CGMA, and Matthew D. Melinson, CPA
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ennsylvania’s 2015-2016 budget will be remembered as a historic budget impasse. Democratic Gov. Tom Wolf ’s ambitious desire to make sweeping changes in his first year in office ran headlong into a Republican majority in both the Pennsylvania House and Senate. Negotiations were delayed by contrasting outlooks on what is best for the future of Pennsylvania. In brief, Wolf gave his 2015-2016 budget address on March 3, 2015, where he proposed an increase in expenditures largely focused on an investment in education and property tax relief. It also included a decrease in the Corporate Net Income Tax rate and added a job-creation credit for manufacturing companies. A majority of the new revenue was proposed to be earned through an increase in the personal income and sales tax rates, an expanded sales tax base, as well as a new 5 percent severance tax. Overall, Wolf ’s proposed expenditures would have increased taxes by $4.7 billion, increasing total expenditures to nearly $34 billion.1 The Republican legislators immediately dismissed the proposed budget, and a stalemate resulted. The budget impasse – the longest since at least 1971 (when personal income tax was first enacted) – has created numerous problems affecting the government and citizens of Pennsylvania. A State without a Budget Is Not a State When a state lacks a budget, the consequences are far-reaching. Businesses, nonprofits, schools, employees, and residents – with their financial advisers – all make decisions based upon the state’s budget. Without it, many Pennsylvanians are left in limbo. Businesses and residents cannot make crucial decisions without the necessary information or funding from the state. Those who rely on property tax
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relief, credits and incentives, and certain tax rates could be placed in peril if an unexpected law is passed last minute. Nonprofit organizations rely heavily on state funding, and they require an on-time budget to run as effectively. Schools are placed in a particularly difficult situation when budgets are not passed. Districts are forced to use cash reserves, suspend tuition payments to charter schools, or take out loans and incur interest charges. Some Philadelphia schools were unable to make payroll or pay bills though the end of January.2 Moody’s credit rating agency lowered its rating for Pennsylvania to “negative,” which will cause an increase in borrowing costs to the commonwealth.3 No Consequences All of Pennsylvania has felt the crunch of a delayed budget passage, but surprisingly the governor and our lawmakers have to answer to no serious consequences. The Pennsylvania Constitution requires a balanced operating budget for the ensuing fiscal year in detail, proposing expenditures classified by department, agency, or program, as well as estimated revenues from all sources.4 Yet there is no prescribed penalty should lawmakers fall short of the requirement. Pennsylvania does not have any laws set in place to ensure accountability if a budget is not passed in a timely fashion. Any state would be severely affected when it does not have a budget, so it is astounding that Pennsylvania has no statutory guidance addressing this situation. California had been notorious for missing budget deadlines. It has since added language in its laws to solve the issue. California does not pay any salaries or reimburse travel or living expenses for the legislature until a budget bill is presented to the governor. In addition, salary and reimbursement for travel or living expenses
Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
forfeited during a budget impasse will not be paid retroactively.5 In Ohio, if a budget is not delivered on time, all facets of government except for emergency services are shut down. New Jersey uses a nonpartisan negotiator to help settle budget disputes.6 Gov. Edward Rendell attempted to put pressure on legislators to make sure the 2008-2009 budget passed in a timely manner. (In the Rendell era, the governor’s budget was not passed on time in any of his eight years in office.) In the event the General Assembly did not enact a general appropriations act by June 30, 2008, the commonwealth would not make any payments to its employees.7 The Supreme Court of Pennsylvania’s decision in Council 13 v. Commonwealth of Pennsylvania deemed that not paying commonwealth employees if the budget was not passed by June 30 was unconstitutional, based on the Fair Labor Standards Act. The result of this decision seems to be that the one truly significant leverage point to ensure the timely passage of budgets does not exist. Remedies Pennsylvania has frequently missed budget deadlines over the years, and we may have fallen into a recurring habit due
Legislative Update For the latest news on Pennsylvania’s regulatory and legislative issues affecting the CPA profession, subscribe to Legislative Update. www.picpa.org/legisupdate 8517/16
to a lack of consequences. Legislators and residents need to change their mindset and make sure every fiscal year begins with a passed budget, as mandated by our state constitution. What if others in the state try to adopt the approach that it is apparently acceptable at the highest levels to materially miss deadlines without consequence? Society is built on trust and a measure of predictability to ensure mortgage, rent, student loan, and tax payments are made on time, or significant penalties are incurred. Pennsylvania lawmakers do not appear to have to adhere to the same standard. On Dec. 29, 2015, Wolf signed a $23.4 billion emergency funding budget which relieved some short-term financial pressure from many Pennsylvania schools, nonprofits, and counties.8 However, Wolf vetoed a large amount of the Republicanled budget saying that it did not balance and that it would increase the deficit and lead to more credit downgrades and fiscal instability.9 On Feb. 9, 2016, Wolf released his executive budget for the 2016-2017 fiscal year. Wolf ’s proposed expenditures focus on education, human services, and
pensions, which total $32.7 billion for the fiscal year. To pay for these, Wolf ’s revenue package would increase the personal income tax from 3.07 percent to 3.4 percent and the cigarette tax from $1.60 to $2.60 per pack, would create a severance tax on natural gas drillers of 6.5 percent, and would expand the sales tax base. Yet, as this issue went to press, the 2015-2016 budget still had not passed in its entirety. Pennsylvania legislators should follow the lead of states such as California, Ohio, and New Jersey, and enact laws that add pressure to pass timely budgets. Our elected officials should take heed and never allow a budget debacle such as the 2015-2016 budget to occur again. 1
Governor Tom Wolf 2015-2016 Pennsylvania Executive Budget (March 3, 2015). 2 Wire report, “Superintendent: Philly Schools Could Close After January Due to Budget Impasse,” ( Jan. 26, 2016). www.nbcphiladelphia.com/news/local/Philadelphia-School-District-Money-BudgetImpasse--362555671.html 3 Tom Kozlik, PNC Pennsylvania Budget Update ( Jan. 7, 2016).
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Pa. Const., Art. VIII, Section 12 and Section 13. 5 Cal. Const., Art. IV, Section 12. 6 Sean Ray, How Do Other States Handle A Budget Impasse? ( Jan. 26, 2016). http://wesa.fm/post/how-do-other-stateshandle-budget-impasse 7 Council 13 v. Commonwealth of Pennsylvania, 986 A.2d 63 (Pa. 2009). 8 H.B. 1460, 2015 Sess. (Pa. 2016). 9 Id. Steve J. Allenson, CPA, is a senior tax associate for Grant Thornton LLP in Philadelphia. He can be reached at steve.allenson@us.gt.com. Vito A. Cosmo Jr., CPA, CGMA, is a managing director, state and local taxes, at Grant Thornton. He can be reached at vito.cosmo@us.gt.com. Matthew D. Melinson, CPA, is a partner, state and local taxes, at Grant Thornton and a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at matthew.melinson@us.gt.com.
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Business & Industry The Opportunities of Finance and Accounting Outsourcing By James J. Caruso, CPA, CGMA
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s financial professionals in business, CPAs have no shortage of problems to solve in our fastpaced and complex world. Optimizing, if not transforming, the finance and accounting function is top-of-mind for many financial executives as they endeavor to overcome the following challenges: Strategy and operations – Routine reporting and compliance matters take time and resources away from valueadded analysis and decision support. Being buried in day-to-day details, unable to find strategic and tactical “think time,” hurts both the organization and personal professional development. Budgetary constraints on staffing – Too often there is a trade-off between headcount budgets and skills/specialization, such as using a budgeted position for a function that is not necessarily a fulltime job, or consolidating two or more incompatible roles into one position. Processes and controls – Inefficient processes that have not scaled with the business take resources away from more value-added activities. Delayed monthend closing and reporting hinders timely, actionable business intelligence. Technology – Disparate, aging systems that are not integrated result in high maintenance and support costs. Information must be seen as a strategic asset, with proper governance and integrity. Talent acquisition and management – There is often an inability to hire the best talent, particularly in small and midsize enterprises. The management and the development of staff should be a priority, understanding that growth in the size or complexity of the business may outpace the skill levels of earlier hires. A solution to many of these impediments is finance and accounting outsourcing (FAO). Now enabled by cloud-based technologies that support continuing
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trends toward virtual business models, FAO solutions are gaining wider acceptance as they move up the value chain, from routine transactional procedures to more value-added financial planning and analysis activities. The potential problems outlined above are interrelated, and a comprehensive, integrated FAO solution could be positioned to solve them. Determining whether to outsource all or part of the finance and accounting function is a “make vs. buy” decision, in which cost is only one part of the value equation. Cost must be evaluated using an appropriate apples-to-apples comparison.
For example, if budget constraints force an organization to have one person fulfill two roles that would more appropriately be filled by two different people having the right skills for each, the cost of FAO should be compared to the cost of those two positions. FAO will provide the right skills for each set of activities, producing far better results than hiring a “jack of all trades” that does not fit either role particularly well. Further, the financial comparison is not as simple as comparing the fees paid to an FAO provider to the gross payroll of employees. The cost of an in-house team also includes payroll
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taxes; health care and other benefits; bonuses and equity-based compensation; computer equipment, software licenses, smartphones, tablets, and related information technology; office space and furniture; human resource compliance costs; continuing professional education; management time for training, supervision, and oversight; recruiting fees; and the cost of lost productivity and morale impacts from voluntary turnover or bad hiring decisions. Considering all of the above, the economics alone may justify outsourcing. But the value proposition is much greater when an FAO solution is viewed as a bundled solution of flexible, scalable, and innovative processes and systems that encompass risk mitigation through improved segregation of duties, access to the breadth of expertise of a service provider, elimination of concern over absences or turnover, and the ability to shift from subjectively evaluating employees to monitoring objective contract performance. Using this broader value proposition, FAO will likely become the predominant mode of execution for accounting and
finance processes, much as in the case of the payroll function. What does this mean for CPAs? It should not be viewed as a problem, but rather as an opportunity for a compelling career path. FAO provides opportunities to do fulfilling management accounting and operational finance work for a variety of companies at different stages and in different industries while working in a professional services environment surrounded by a motivated and ambitious peer group. In most middle-market companies, advancement opportunities are dependent upon the person above you moving up or out; there is only going to be one controller position no matter how much the company grows. Job security is predicated upon the fortunes of the company, and even success can be career-limiting if it leads to a sale of the company. At an FAO provider, you are a profit center, not a cost center. In a firm that is growing, there will be no shortage of promotional opportunities. A career at an FAO provider is likely to provide an environment more conducive to professional
growth through lifelong learning, the ability to leverage the firm’s intellectual property, and the market-driven imperative to continuously reinvent your skills to stay relevant. In contrast, within a middle-market company your exposure to new processes and technologies may be limited by the company’s trajectory, budgets, and other forces out of your control. If you are so inclined, at an FAO provider you may also have the opportunity to move beyond the performance of accounting and finance activities to practice management, business development, and other marketfacing pursuits. We are fortunate to be CPAs today. We can experience the expanding array of possibilities that FAO represents for both problem solvers and solution providers. James J. Caruso, CPA, CGMA, is partner, finance and accounting outsourcing, with RSM US LLP in Blue Bell, and a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at jim.caruso@ rsmus.com or on Twitter @jamesjcaruso.
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Practice Succession Planning Five Factors for the Successful Buyer By Ira S. Rosenbloom, CPA
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he number of firms in merger and acquisition (M&A) conversations is growing at an accelerated pace with no signs of slowing. In fact, the AICPA predicts that in less than 10 years, 75 percent of all current accounting firm partners will be retired. Succession planning and the quest for market share growth are two of several factors that are fueling the M&A momentum. Those interested in being a successor may see more overall competition than imagined, and more of an analytical type of competition as well. Here are five critical factors to best position your company as the champion suitor. Clarity of Vision Defining what the combined firm will be and what it will look like is essential to guiding the process, much like the rendering for a construction project. The more operational details that you include and the more compelling picture that you paint, the better chance you’ll have of getting the deal. Focus on the company brand, its deliverables, pricing, market presence, human resources, scheduling, work flow, billing and collections, service modules, and client-retention methods. As the buyer, you need to do some critical long-term planning before even stepping up to the negotiating table. Some of the most important components for you to consider include your client base, fee structure, employees, and the number of billable hours that you’ll need to execute your company’s vision. Do not underestimate the importance of your own office culture when contemplating a merger. What’s the ideal size and scope of your firm, and how would an acquisition fit into this goal? All of these factors should be integrated into your business plan. Once you have developed a roadmap
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for longevity, you can begin to determine which type of sellers fit into this vision. Company Strategy and Motivation Establishing prioritized goals and being disciplined about them is significant. The more closely aligned your goals are with the seller’s, the better potential you have for a successful deal. Common priorities for a buyer would be increasing talent, creating or intensifying a niche, marketplace positioning, enhancing profitability, offering new services, improving client demographics, and strengthening appeal to potential new hires. Focus on the details of what you’re trying to achieve and how a particular acquisition might fulfill that. For example, if your firm already has a good reputation for servicing a particular sector and you want to continue growth in that area or expand into a parallel sector, then it makes sense to target practices that would accomplish that. Another strategy might be taking your firm’s established knowledge base and expanding it into a specific geography to help you sustain long-term growth. The more excited the seller is with your strategy the better the odds for a deal. Attitude If yours is a multipartner firm, being united in your goals and interests is vital. Without that unity, it will likely take longer to close a deal, if at all. A seller may even downgrade your firm as an option or raise the ante to finalize the transaction. In many cases, attitude will lead to concessions that otherwise would not be possible. Consistent focus on, and communication of, the deal’s benefits will help intensify interest and keep the partners on the same page. Differences in succession planning goals, or lack thereof, can kill a possible sale before it even gets to the negotiating stage. Each partner in the
Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
firm will likely have his own succession plan and timing, so it’s best to understand what those are at the onset. When a sole practitioner is the buyer, confidence and humility are essential. Learning and gaining expertise go a long way in motivating a seller when negotiating with a solo practitioner. Staging the deal, or allowing for phases that build toward an agreed end date/full merger or sale, may carry clout as well. Capacity for Expansion Sellers want to know that their successors have the skills and personnel to both handle their clients and protect their staff. It is critical to carefully evaluate your firm’s staffing capacity and how it will handle the potential new workload. Experience has shown that when merging accounting firms have transitioned effectively, an overwhelming majority of acquired clients, typically 90 percent,
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remain with the new practice. That will be a significant increase in client accounts, so if your firm is already at capacity this could be overwhelming. Think seriously about your own firm’s current capacity to manage that and how your staffing may need to change to fulfill it. If your staff already has a full workload, splitting the new client accounts amongst existing staff is probably unrealistic. Unemployment is currently very low in the accounting field, so be prepared for the amount of time it will take to recruit the right employees. Comfort with Compromise The best buyers recognize that one-sided deals are unlikely to prevail. Furthermore, deals that require too much compromise are just as unlikely. Buyers need to know what their “line in the sand” issues are, prioritizing their most important items and making adjustments on less important issues. When working through a compromise, conversation is critical both internally and externally. The more that issues are discussed and not merely dismissed – clarified and not argued – the greater the propensity for a successful outcome. If you can’t reach a compromise in a reasonable amount of time, try moving on to a different issue or bringing in an outside mediator. In most transactions, it is assumed that a certain level of negotiation and compromise will take place, especially once the larger pieces are in place. A smart buyer will keep the long-term vision at the forefront of the M&A negotiation and not get sidetracked by short-term factors that may look good on paper but won’t help fulfill that vision. Of course, price and purchasing terms are always important factors that impact a final sale, but rarely do these two elements derail a merger. Differences in company culture, long-term goals, and partner succession are more likely to be deal-breakers. Savvy buyers will treat M&A like a line of business, and they will analyze every factor that could affect the success of their practice. Time spent exercising due diligence now and incorporating that analysis into the business plan will best prepare buyers for making the most advantageous match possible. Ira S. Rosenbloom, CPA, is chief operating executive at Optimum Strategies LLC in Spring House. He can be reached at ira@optimumstrategies.com.
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www.neumann.edu Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
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Practitioners Stop the Clock on Clients By Alyzabeth R. Smith, CPA
S
urprises can be fun. Birthday parties, movie plot twists, and Publishers Clearing House checks rank highly on the list of pleasant surprises. Somewhere at the top of a contrasting list you would probably find broken water heaters, a new dent in your parked car, and surprise accounting bills. What’s not a surprise are the angry phone calls that follow the accounting service sticker shock. One answer to the shocked and angered client may be value pricing. It could help firms negotiate more efficient pricing methods up front, resulting in predictable and potentially more lucrative billing. It could also help keep more qualified professionals in public accounting. Reducing an employee’s merit to a billable hour disregards all of the other professional qualities that attract and retain a client base. In fact, those additional qualities are often unbillable, but they add a comprehensiveness to the services delivered and strengthen client loyalty. Though work/life imbalance is regularly cited as a reason for the exodus of qualified professionals from public accounting, reaching billable-hour benchmarks is often a driver of that imbalance. It involves personal investment of nonbillable time for administrative tasks, research, and training that may have been disregarded by a budget. Then it is followed, ultimately, by the dreaded bill write-down. Billable hours are a successful method of encouraging responsibility among personnel, but it is not the only way to stimulate accountability. Staff may have a quantitative indicator for performance measurement, but accurately tracking and analyzing the minute-by-minute minutia generates an unrecoverable cost of its own. Achievement of a deadline date and recognition for efficiency in process methods are viable, alternative metrics for measuring accountability. These macro
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metrics allow staff to effectively service clients without sacrificing product quality. Appropriate managerial and client communication would still be customary in the event of a change in expectations, timing, or deliverables. A billable-hour system can skew more than an employee’s performance. Analysis of pricing may be distorted by aligning price with production cost rather than the utility of service. Irrespective of the method of calculation, price is an acknowledgement of value. By marrying price to time, firms may be setting prices below the consumer’s expectation of service worth. The market may bear more, so firm profit suffers. Consider a $10 million company paying $2,000 for a service that saves them several hundred thousand dollars. Was the price charged indicative of the value received? Time cannot be ignored as a component of client billing, but the time tail should not wag the pricing dog. Costs should be used to determine feasibility, but analysis of the client and service value should be the final price determinants. While many firms do not appear averse to the idea of value pricing, there has been no industrywide push in that direction. Billable hours survive as a functional pricing mechanism because clients have largely accepted the industry’s standard. Perhaps it’s just that change is intimidating, particularly one that espouses an overhaul of the method of assigning and collecting profit. To make the transition less concussive, the new pricing strategy can be implemented in phases. New clients will likely have less trouble incorporating the new regime, particularly since their pricing will likely be determined in a preliminary assessment of their needs and expectations. These conversations are prime occasions to educate clients on additional services offered by your firm that they may find useful. Existing clients
Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
may require additional clarification, but may take solace in the idea that their services are more holistic and reflected in comprehensive pricing. Clients who fear less transparent billing can be advised that billing details can still be itemized. Services provided would be listed separately, but with the aggregate, established value price. That said, the price modification environment might also be a good opportunity to reassess clients for their compatibility with the organization. As with any change, wrinkles are likely, and some of the surprises in the short term may make the list with the broken water heaters. Long-term visionaries, though, see value pricing as an opportunity for enhanced firm profit, and increased price certainty breeds client confidence. Too much segregation of services can leave a client feeling “nickel-and-dimed.” Value pricing returns client focus to a firm’s provision of comprehensive client care. With the revised performance model inherent with a change to the pricing framework, staff is permitted the latitude to effectively service the client base. It may be a stretch to say that the billable-hour system is broken, but it isn’t optimal. Simply functional doesn’t garner first place, and it isn’t a description envied by pioneers. Just as management strives to find additional ways to maximize client satisfaction, methods should also be implemented to promote the company’s overall profit optimization. Hours in a day are limited, but the boundaries of value and the associated pricing are more flexible. Firms would benefit from taking advantage of those flexible borders. Alyzabeth R. Smith, CPA, is a tax accountant for Wipfli LLP CPAs and Consultants in Media. She can be reached at alyzabeth_smith@msn.com.
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Personal Financial Planning VeriďŹ cation and Coordination When Estate Planning By Laurie A. Siebert, CPA, CFP, AEP
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PAs certainly have an intimate view of their clients’ financial information when preparing their income tax returns. Through this work, even CPAs who do not consider themselves financial planners may be privy to information that could impact a client’s estate plan. Rather than working in a bubble, CPAs who reach out and help their clients verify their information and coordinate with other engaged professionals will elevate their level of service, client engagement, and the trusted-advisor relationship. Relevant information to review includes net worth, cash flow, retirement account holdings, asset titling, beneficiary designations, and powers of attorney. The professionals involved in estate planning include the CPA, attorney, insurance agent, and investment professional, all of whom should work together on the estate planning needs. Calculating the net worth of a client is not enough. An inventory of assets, titling, beneficiary designations, liabilities, cash flow, and current estate documents needs to be gathered and understood. Make no assumptions. Each professional will have a part in the proper implementation. The value in the planning is verifying the proper execution. Many people believe their will directs the disposition of their assets, even when they understand that they have joint accounts or designated beneficiaries on retirement accounts and life insurance. Accounts that are designated joint ownership with rights of survivorship, transfer or payable on death accounts, and designated beneficiary accounts pass directly to those named. Joint accounts, other than tenants in common, may still be included in full for estate tax purposes and subject to tax. There is a presumption that a joint account is fully includable unless the representative can demonstrate contribution
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from the other joint owners. Most wills direct that the death taxes on the entire estate will be paid from the residuary estate, even when nonprobate assets are not included in the residue. Without understanding this estate planning principle, a residuary estate beneficiary may bear the burden of the estate tax without having the benefit of those assets. Techniques to mitigate estate or inheritance tax involve the use of trusts, asset titling, life insurance, and life insurance trusts. Trusts can further assist in the administration of foreign assets outside the resident state or for financial management for survivors. A proper power of attorney allows lifetime planning in cases of incapacity or incompetency. Additional strategies include postmortem planning options using disclaimer provisions in the documents or proper contingent beneficiary designations. About 50 percent of people do not have estate documents, and therefore do not have the tools or options available that those who planned have. Even so, much of estate planning lands outside the documents. The life insurance agent sets up the life insurance, the investment advisor coordinates the asset titling and beneficiary designations of the investment accounts, and the client establishes the titling of real estate, personal property, and bank accounts or self-directed investments. The CPA is expected to manage the taxes, which requires coordinating and understanding the plan. A place to start is an inventory and verification of the assumptions. The inventory should be dated and should include asset values, ownership registration, property location, associated liabilities, life insurance policy types, terms, beneficiaries, and contingent beneficiaries and their relationship. Secure copies of estate documents for further review and a list of associated profession-
Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
als engaged. In addition, document the ages and ability of survivors to receive and manage inherited assets. Develop a flow chart to illustrate the value of the estate, potential death taxes, and resulting dispositions so that the client understands the value of the assets passing, to whom they are passing, and how they are passing. After reviewing with the client, coordinate with the other professionals to bring about beneficial strategies that implement the desires and outcomes the client expects. Anticipate unforeseen circumstances as well. Understanding cash flow and family dynamics will enhance estate plan projections. Further planning will be required for long-term care, special needs, potential divorce, and generation-skipping strategies or spendthrift provisions for spouses, children, or grandchildren. Communicate to clients that proper planning allows flexibility and options for their representatives when unforeseen estate issues may arise. CPAs are on the front line in getting a client to work with an attorney in drafting estate documents and implementing a plan. CPAs involved in estate planning should have a thorough understanding of advanced techniques in planning, including using marital, qualified terminable interest property, bypass, and irrevocable grantor type trusts. Becoming involved with local estate planning councils provides opportunities for both education and professional networking with those involved in estate planning. Laurie A. Siebert, CPA, CFP, AEP, is an investment adviser representative of Valley National Advisers Inc. Securities are offered through Valley National Investments Inc., member FINRA, SIPC. She is a member of the Pennsylvania CPA Journal Editorial Board, and can be reached at lsiebert@valleynationalgroup.com.
Government/Not-for-Profit Why Not-for-Profits Need Both Audit and Finance Committees By Laurie Horvath, CPA
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hen building a volunteer organization, optimizing volunteer resources and capitalizing on employee time are primary challenges. The common solution is to institute overarching committees of finance, nominating, programming, and fund-raising. Due to this committee consolidation, audit and financial reporting responsibilities are often added into the finance committee. Even with the growth of an organization, these two functions never leave that one committee – even though they should. Understanding the critical distinction between a finance and audit committee is
a natural part of the maturation process for any not-for-profit organization. Notfor-profits are always looking for ways to economize, and they often believe that one committee for both financial and audit oversight will save management time and volunteer resources. At first this may seem true, but the benefits of separate and distinct audit and finance committees are too important to ignore. Generally, the finance committee is charged with the financial practices of the organization, while the audit committee oversees the process in which these practices are carried out. An example would
be the finance committee’s responsibility for the preparation of the organization’s budget and financial statements; whereas the audit committee ensures that those financial statements are looked over and disseminated appropriately. They seek and share the findings of the organization’s independent auditors. Here is the standard division of responsibilities for both. Audit Committee • Examines the organization’s financial statements and other official financial information provided to the public.
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Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
• Ensures that reports are received, monitored, and distributed correctly. • Oversees the organization’s internal controls, including management’s compliance with applicable policies, procedures, and risk management. (For example, an organization that is part of a national network might annually review whether it meets rechartering requirements.) • Usually oversees the annual independent audit process, including engaging the independent auditor and receiving all reports and management letters from the auditor. • Views the annual information returns (IRS Form 1099) and tax returns (IRS Form 990 and related schedules and forms), and recommends them for approval, signature, and submission by the appropriate officer. It also transmits the returns to the board for oversight before signing and submitting it. • Examines the organization’s procedures for reporting problems. (For example, the whistle-blower policy and process, anti-fraud policies, and
policy and procedures related to the discovery of errors or illegal acts.) Finance Committee • Oversees the preparation of the annual budget and financial statements. It ensures that budgets and interim financial statements are prepared. • Oversees the administration, collection, and disbursement of the organization’s financial resources. • Advises the board with respect to making significant financial decisions, such as correcting or restructuring the organization’s books and accounting procedures when fiscal problems arise. • Oversees the preparation and implementation of the governance policies referenced in the Form 990: conflict of interest, document retention, whistle-blower, look-over of executive compensation, etc. • Ensures that joint membership between the audit committee and the finance committee meets local laws and regulations (if an organization has both committees).
Although finding appropriate members to sit on each of these committees and who share a passion for the client’s mission can be difficult, placing these volunteers on a single committee to oversee both the finance and audit committee charges is not the answer. The heavy workload of a combined audit/ finance committee volunteer makes the service unappealing to many potential members. Separating the two responsibilities into different groups reduces the burden and increases the number of volunteers who will remain dedicated to the organization’s mission through committee placement. While separating the financial and audit committees may not be an easy option for all not-for-profit organizations, there are substantial governance and oversight benefits that pay tremendous dividends over time. Laurie Horvath, CPA, is a partner with Baker Tilly Virchow Krause LLP in Detroit. She can be reached at laurie.horvath@bakertilly.com.
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Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
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Liability Lessons “But It Was the Client’s Fault” May Just Work By Jonathan S. Ziss, JD
E
mbezzlement, defalcation, fraud. When these crimes occur, owners, board members, trustees, and receivers first cast aspersions against the bad actor. Usually that flame burns out quickly due to lack of fuel. That is to say, in most of these scenarios the bad actor has already gambled, snorted, or in some other way dissipated the stolen money down to nothing. For this reason, prosecution, incarceration, and even court-ordered restitution typically do not right the wrong or heal the wound. The victim – your client – wants more. Often, they will want it from you. Whether the engagement involved tax compliance, bookkeeping, attest work, or consulting, the question will arise: “Didn’t the CPA have a duty to prevent or to detect fraud?” Another fair question might be “Doesn’t the client bear responsibility for its own carelessness?” Using your client’s own fault as a defense to a malpractice claim arising out of an embezzlement, or the like, is the focus of this article. We will first consider the role of engagement letters and management representation (rep) letters. How well do they serve the CPA in pointing the finger of blame back at the client? We will then consider the legal theories of contributory and comparative fault; reliance and causation; audit interference; and the in pari delicto defense. We will conclude with the consideration of how common sense and the power of storytelling can influence how a jury might consider a malpractice claim involving undetected theft. Engagement letters that include limiting language to the effect that the engagement is not designed, and cannot be relied upon, to detect fraud are very helpful. They frame the issue from the opening discussion. When combined with language that describes the duty of
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the client to provide the CPA with full, complete, and accurate information, the engagement letter may begin to delineate where the CPA’s duty ends and the client’s duty begins. Likewise, in an attest engagement, the written representations of management can clarify the relationship between the outside CPA and the client’s management with regard to the duty to detect and prevent fraud. True, neither an engagement letter nor a rep letter is generally enough to carry the day and bring about the dismissal of a malpractice claim. As a starting point, though, they confer a real advantage. They do so, in part, by putting the issue of management’s responsibility on the table for discussion. Without an engagement letter, the CPA starts off behind the proverbial eight ball in this regard. Using the engagement letter (and rep letter, if available), the CPA’s defense counsel has the opportunity to lock in management concerning its own obligations. This opens the door to a broader interrogation of management concerning its philosophy, style, and approach to risk management. The more time and attention that is spent in litigating the role of management – keeping ownership in the spotlight – the better. This helps to place the CPA standard of care in a proper context, as a typically small part of the embezzlement story rather than the main event. Putting engagement letters and rep letters to one side, there are legal theories that may come into play that help to differentiate the role of the CPA and role of his or her client in allowing an undetected bad actor to cause harm. Comparative fault is a legal theory that means exactly that: the percentage of fault of one negligent party is compared with the fault of other parties, with the total
Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
adding up to 100 percent. In Pennsylvania, though, comparative fault applies only to claims involving personal injury or property damage. It does not apply to accountant professional negligence cases. There is a related concept, however, with the confusingly similar name of contributory negligence that Pennsylvania courts have accepted in accountant malpractice cases. Contributory negligence is, practically speaking, defined as negligent (careless) behavior by the plaintiff that helps to facilitate or bring about the harm. Outside of an attest engagement (more below), if it can be shown that management was somehow derelict in its duties, and that this behavior was a cause of the harm, the contributory negligence defense can result in the outright dismissal of the case or in a defense verdict at trial. There are few published decisions in Pennsylvania on this important issue, but in one such case the defense was used to defeat a fraud claim arising out of a compilation engagement. So one might reasonably argue that a business that operates with little or no segregation of duties around financial functions, and that fails to supervise its financial staff, is guilty of contributory negligence in the event that the bookkeeper has been stealing through payroll or a vendor scheme. In the audit arena, courts have been less inclined to allow auditors to blame PICPA event photos, fun reads, and helpful resources on… Facebook www.picpa.org/facebook Twitter www.picpa.org/twitter LinkedIn www.picpa.org/linkedin CPA Now
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their clients for shortcomings. So, the contributory negligence rule has been confined to a limited formulation, known as the audit interference rule. In short, only if the client acts to interfere with the audit in a deleterious (relative to detecting the fraud) way will contributory fault come into play. As limited as this may seem, take heart: at least courts in Pennsylvania still recognize the defense. When the fraud has been perpetrated by senior management, a different defense may apply. Known commonly by an abbreviated version of its full expression in Latin, the in pari delicto (in equal fault) defense provides that the courts will not adjust differences between two wrongdoers. So, if management can be shown to be corrupt, the entity cannot blame its CPA for having failed to stop its bad behavior. This defense is highly nuanced and fact-dependent. Yet, when it does apply, it can be used to defeat the most serious and financially threatening types of malpractice claims, such as those involving corporate collapses that result in bankruptcy. Finally, we come to the role of common sense and the power of storytelling. Jurors, like the rest of us, like a good story. A good story has good guys and bad guys. In the end of a good story, the good guy prevails and the bad guy gets what he deserves. Trials, as it happens, work much the same way. In an accountant malpractice case, the key is to portray management in the unflattering light of its carelessness and singular focus on making money without taking the time to mind the back office. Combine this with management’s smug willingness to blame its hardworking and dutiful outside accountant rather than to take responsibility for its own day-in and day-out deficiencies. Now you have a story in which the CPA isn’t the bad guy, and in which the bad guy got what he deserved. In the best of worlds, you won’t ever have to think about how your client’s own fault compares with alleged deviation from the standard of care. But know this: should that day come, there is indeed much to think about. The story didn’t begin with you, and, with a little luck, it won’t end with you either. Jonathan S. Ziss, JD, is a partner with Goldberg Segalla in Philadelphia. He can be reached at jziss@goldbergsegalla.com.
career . As th e to worki ng prof p choice for ession New Je als thro rsey an compe ughout titive d the Valley, Delaw marke the Rut which tplace are can be gers P delive , all of MAc rs a re instan in the levant tly ap workp taught plied curric lace. T by ex pr ov ul um he PM ides pa ceptio an acce na A rt c l ic fa lerate broad ipants culty d coho backgr with a The pr rt form in ound ogram and bu in acco at. provid siness opport un es a un , ti unity an ca ng d deve reers ique to deve critical in publ lops th lop kn thinki ic, co eir govern owledg rporat ng, de ment, skills, e, an e, cision non-pr and te d -m educat ofit ac amw aking groups counti ion. T of dive ork savvy the 15 ng, he prog within 0 cred rse pr from ram m ofessi it hour a vari of the eets onals ety of s requ state of and in organi iremen dustri N th zation ew Je t e Certi es thro rsey to region s fi ed ug Public hout th . The sit for (CPA y co Accou ) exam e this 16 nting inatio -month llaborate du n. ring progra stimul m to ate their po their intellec t, heig te hten perspe ntial, and br ctives oaden while their profes expand sional ing th ne thrive twork. eir with a Partici curric pants convey ulum s anal that ytical busine tools, ss tech th e latest niques skills , an needed to succ d enhanced eed in today’ s
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Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
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Careers & Lifestyles The Counteroffer: Six Reasons to Not Accept By Mary M. Porreca
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ou begin a job search for a reason. Whether it’s about a more challenging opportunity, earning more money, or being mentored by a dynamic leader, you are ready for a change. Let’s say you have made every attempt to improve your current situation. If you felt you were underpaid, you asked for a raise. If you were not being challenged in your job, you have sought opportunities to increase your responsibility to broaden and deepen your work experience. If these efforts did not work, you are now at a place to consider exploring new opportunities and finding a position that better fits your career goals. After doing extensive career research and embarking on a job search, an ideal opportunity has been presented to you. You accept and resign from your current role. Now your boss presents you with a counteroffer. But why? Are you suddenly a more valuable employee, worthy of a larger salary, increased responsibility, or more flexibility? More likely your boss is panicking. It is easier and less costly to make concessions to keep you than to take the time and pay the costs necessary to replace you. Once you have made your decision to depart, don’t be swayed by a counteroffer. In addition to making promises about salary and new responsibilities, management may use your colleagues to play on your emotional attachments. This may include mentioning how disappointed they are in your decision, or how you are a natural fit to grow into a more senior position. Don’t let any of this cloud your judgment. If you were thoughtful and careful about your decision to leave and accept a new position you felt was right, then feel secure about the process you went through. Trust your judgment and remember that this move is about your career. Here are six reasons why you should
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not accept a counteroffer: • Your company is only making the offer under threat. It should have never have gotten this far. You made a sincere attempt to improve your current situation, so if you were that valuable to the company they would have fixed the obstacles prior to you resigning. • Your underlying reasons for leaving haven’t changed. While money can be part of the reason that you are leaving, more often there are other factors that caused you to look: corporate culture, current leadership, boredom. Whatever the root causes were, they have not changed. • Your boss is only going to keep you until you can be replaced. It is possible your employer may just want time to search for your replacement, figuring that it’s only a matter of time until you start another job search. You may be pushed out soon after you accept a counteroffer. • Your relationship with your coworkers will be affected. How will your coworkers react when they hear of the counteroffer? Salary may be confidential, but coworkers will notice extra benefits such as working from home or additional vacation time. This can cause resentment toward you. • Your reputation within the company will be affected. Whether you get a promotion, more money, or better benefits as part of a counteroffer, what happens next time there is a round of promotions or raises? Will you be passed over? Or if there are cutbacks, will you be on the list? • Your reputation within the business community will be affected. You should remember your reputation is tied to your actions. Consider what
Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
may happen if you accept a counteroffer and years later find yourself interviewing for a position at the company or with the individual whose job offer you ultimately turned down. That’s a dangerous position to put yourself in. Recently, more executives seem to be getting and accepting counteroffers because of an inconsistent job market. Companies are operating with leaner staffs, and any defections from the ranks create problems for those who remain. A counteroffer isn’t about what’s best for you; it’s about what’s best for the company. There may be times when accepting a counteroffer has worked out (there are always exceptions), but it is a bad idea so frequently that you should be extremely cautious before doing so. The best way to deal with a counteroffer is to not allow it to occur. Beginning the discussion induces the company to invest time and resources into enticing you to stay. Keep your resignation simple and direct. Make it clear that you have thought through your decision and that you will not entertain a counteroffer. If your boss asks if there is anything he or she can do to keep you, do not rehash old grievances or try to explain your reasons for leaving. A clear message that your decision is final should stop your company from even making a counteroffer. Take an active part in your own career management. If your company is interested in your progression, you’ll know it before you decide to resign. If you change your mind and stay, your motives and methods will always be suspect. Keep a steady course and don’t look back. Mary M. Porreca is an executive recruiter for Attolon Partners LLC in Philadelphia. She can be reached at mporreca@attolon.com.
International Tax Tax Planning for U.S. Operations of Foreign-Owned Enterprises By Leonard Schneidman, JD, and Andrew M. Bernard Jr., CPA
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his column discusses the key organizational, operational, and repatriation tax issues of foreignowned U.S. enterprises. We start from the assumption that the foreign corporation is entitled to the benefits available under a U.S. income tax treaty (the tax treaty). There are three possible choices for the organizational form of the U.S. operation of a foreign-owned company: • Subsidiary • Branch • Partnership or LLC The choice depends on the nature of the business and the scale of the intended operations. The formation of a corporate subsidiary is not a taxable event. However, a subsidiary will pay both U.S. federal and state income taxes on its income. Dividends paid by the subsidiary are subject to U.S. withholding tax reduced by the tax treaty, but dividend payments are not deductible by the subsidiary. Use of a subsidiary generally avoids any engagement in a U.S. trade or business by the foreign parent. The transactions between a subsidiary and its parent are generally subject to arms-length transfer pricing rules. A branch is an extension of the parent company’s home office. The foreign parent is taxable on income effectively connected with the U.S. trade or business conducted by the branch. Under the tax treaty, tax is limited to income attributable to the parent’s “permanent establishment” (branch office). In addition to regular corporate income tax, operating through a branch triggers the possible application of a branch profits tax. The tax treaty, however, reduces the branch profits tax rate. A partnership is not subject to tax. Its partners, however, are considered to be engaged in the partnership’s business and are taxed on their allocable share of the partnership’s effectively connected income.
A corporate partner is also subject to the branch profits tax on its allocable income. For both U.S. branches and partnerships, failure by the taxpayer to timely file a U.S. tax return will lead to the loss of otherwise available tax deductions. In addition, failure to file the proper IRS forms can result in significant penalties. It is generally better to fund U.S. direct investment via debt rather than equity: • Interest is deductible, whereas dividends are not. • Debt can be repaid tax-free. • The tax treaty reduces withholding tax on interest. Despite the tax stakes, there are no statutory rules distinguishing debt from equity. Case law has established a number: documentation, fixed maturity date, thin or adequate capitalization, and creditworthiness (though not one is conclusive). Even if an investment is properly characterized as debt, there are limitations on the deduction of interest. • No interest deduction for accrued, but unpaid, interest paid to a related foreign entity unless the interest is currently includable in the income of the foreign recipient. • Earnings-stripping rules can defer the deduction of interest paid on related-party loans in certain instances when the issuer has a debt-to-equity ratio that exceeds 1.5 to 1. • Earnings-stripping rules can apply to third-party loans if a treaty reduces the withholding tax imposed on interest and the loan is guaranteed by a related foreign person. There is typically a choice between using U.S. employees or foreign employees. For the foreign employee, the issue is whether continued employment will give rise to U.S. tax residence (and tax on worldwide income). U.S. tax residence is determined under the “substantial pres-
ence” (day count) or green-card tests. For the foreign parent, the presence of its employees in the U.S. raises the possibility that their activities will give rise to a U.S. trade or business attributed to the parent. Profits can be repatriated to the foreign parent in a number of ways: • Dividends • Interest • Royalties • Income on inbound sales Royalty payments are often a taxefficient means to extract profits from the U.S. enterprise. Treaties typically reduce withholding tax on royalties to zero. Often the business activity contemplated is the sale of inventory products by the foreign parent to U.S. customers, i.e., inbound sales. Planning techniques are available to divide the total profit to be realized on the sale so as to minimize the income attributable to the U.S. affiliate. It is critical that the activities of the foreign parent do not constitute engaging in a U.S. trade or business through a permanent establishment, directly or through agency. So long as the parent company does not have a permanent establishment in the United States, it will not be subject to U.S. tax on gain from the sale of its inventory or the shares of its subsidiary. A liquidation is treated as if the subsidiary sold its assets at fair market value, thus subjecting any asset appreciation to U.S. tax. The distribution of the assets to the foreign parent, however, is tax-free. Leonard Schneidman, JD, is managing director for Andersen Tax in Boston. He can be reached at len.schneidman@andersentax.com. Andrew M. Bernard Jr., CPA, is managing director for Andersen Tax in Philadelphia and a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at andrew.bernard@andersentax.com.
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Litigation Support Why a Formal Fraud Risk Assessment Program Makes Sense By Frederick J. Kohm Jr., CPA, CFF
I
recently performed an internal investigation for a client related to a cyberattack: an e-mail scam directed at the CEO and company controller defrauded the company of significant assets. During the course of the investigation, we uncovered an additional, unrelated fraud with accounts payable transactions. This second instance of fraud was perpetrated by an individual within the accounts payable function, and was uncovered through a sampling and analysis of transactions over several years. In both cases, the individuals allegedly committing fraud were thought to be ethical, hardworking employees by their peers. The client – a growing, privately held international corporation – employed a director of business risk, had internal controls, and received clean, unqualified opinions from its auditors. What they did not have, although not required, was a formal fraud risk assessment program (FRAP). An FRAP would have significantly reduced the time we spent investigating the losses because risk at the company would have already been examined and possibly eliminated prior to our engagement. Ultimately, the reason for an FRAP is to mitigate the potential for fraud occurring. It is an anti-fraud-and-corruption tool used to train staff, educate the board and audit committee, assist those who rely upon your financial assertions, and protect the stakeholders who have invested in the business. As businesses evolve, the threat of fraud likely changes, and the types of frauds threatening the business become more complex. A well-executed FRAP will consider changes in your industry and evolve with your business. The following are the top three reasons you should have an FRAP, as well as antifraud-and-corruption tools, in place at your business. Process – An FRAP creates a process
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you will rely upon to perform analyses in a time of crisis, to help strengthen controls, and to build better anti-fraudand-corruption tools for the future. A process will help you build a culture that will fence in the highest-risk areas of your business and force your professionals to discuss the unpleasant topic of fraud (which many would rather avoid). Process also builds awareness, which can help lessen the opportunity fraudsters need to move forward with their bad intentions. Impact – Should fraud occur in your business, you will suffer less loss for a shorter duration if you have a formal FRAP in place. Fraud affects companies with FRAPs less than companies without a program. According to survey results outlined in the Association of Certified Fraud Examiners’ Report to the Nations on Occupational Fraud and Abuse: 2014 Global Fraud Study,1 companies with formal FRAPs are more likely to have an average loss 44 percent lower than companies without a program in place (about $94,000 versus an average loss of about $168,000). The duration of occurrences of fraud shorten to 12 months from 23 months. Compliance – Guidance provided by standard setters and regulators points to the need for auditors to consider fraud and take into account the results of fraud risk assessments. An FRAP will provide the tools you need as a financial professional to rest assured that you have taken every possible action to mitigate fraud at your company. The implementation of a formal process allows a dedicated team to focus on the fraud risks specific to an organization. After identifying fraud risks through a formal process, you have the ability to map identified risks to your internal controls, and determine if the controls are adequate. Those fraud risks that are
Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
not currently covered by controls, called residual risk, may then be valued. A cost-benefit analysis may determine the appropriate course of action in mitigating these fraud risks through the addition of controls or additional monitoring through the use of unscheduled interviews, audits, and reconciliations. Further, within a formalized program, interview questions and modules may be prepared for specific divisions of your organization; dashboard reporting may be prepared for stakeholders to highlight specific areas of fraud risks; and trends (as well as new and evolving fraud risks) may be monitored over time. Urgent and emerging threats to your business may be discussed, and training can occur to keep staff abreast of what may be happening outside your organization. Within an FRAP, data analytics may be performed (the capture and analysis of data to identify trends and clues that indicate the existence of fraud). A more substantive and targeted reconciliation and testing of data will occur as a result. A formal program, with the associated focus on structure, will bring discipline to the process, highlight fraud risks in your company, and help your organization focus on compliance. If done correctly, an FRAP will help you mitigate and reduce the risk of fraud at your company in the future. 1
Association of Certified Fraud Examiners, ACFE Report to the Nations on Occupational Fraud and Abuse: 2014 Global Fraud Study, 2014. Frederick J. Kohm Jr., CPA, CFF, is partner and practice leader, forensic, investigative, and dispute services for Grant Thornton LLP in Philadelphia. He can be reached at frederick.kohm@us.gt.com or on Twitter @FKohm.
Education Concept Mapping By Bruce A. Leauby, CPA, CMA, CFE, Kristin N. Wentzel, PhD, and C. Andrew Lafond, CPA, DBA
I
nstructors employ numerous creative teaching methods to better develop students’ professional competencies and skills. One approach that deserves attention is “concept mapping.” Concept mapping encourages meaningful learning, as opposed to rote learning, by helping students bridge the gap between what they already know and newly obtained knowledge. The drawings and diagrams of concept mapping are beneficial because they require students to think actively and visually about what they have learned and they help faculty assess the learning outcome. A concept map is the symbolic representation of how students process information and organize knowledge. The map shows how cognitive knowledge is developed structurally by the learner, including hierarchical structure, progressive differentiation, and integrative reconciliation. Here is how these learning theories fit into the context of accounting knowledge: • Hierarchical structure refers to recognizing knowledge as part of an inclusive framework, such as identifying that periodicity and going-concern assumptions fit into the hierarchy of Generally Accepted Accounting Principles (GAAP). • Progressive differentiation means that learners develop more ideas and concepts as knowledge deepens, such as recognizing that the going-concern principle presumes business continuity; in other words, students expand their understanding of the attributes of GAAP principles. • Integrative reconciliation occurs when a learner perceives interrelationships, such as a relationship between two or more GAAP principles not previously recognized.
Classroom Implementation Concept mapping is useful as a planning tool, as a learning tool, and as an evaluation tool. Planning tool – As a planning tool, instructors can provide a concept map at the beginning of a unit to give students a visual roadmap of where their studies should take them. Mapping does take time, but shortcuts are available for those who want to experiment with concept mapping before investing in the effort. For example, an inventory of 12 readyto-use maps for introductory financial and managerial accounting is available at the Global Perspectives on Accounting Education website.1 Additionally, numerous software programs offer free trials or downloads to expedite concept mapping: • Inspiration (www.inspiration.com) • Smartdraw (www.smartdraw.com) • Decision Explorer (www.banxia.com/ downloads) • Visual Mind (www.visual-mind.com) • MindManager (www.mindjet.com/ US) Learning Tool – To effectively reinforce learning, professors can require students to map a unit of instruction at its completion. This can be accomplished in a variety of ways. Students could individually submit concept maps before instructors distribute their own map of the subject. If class time permits, students could also work in teams to formulate concept maps of the material, encouraging students to share ideas and build teamwork skills. Latitude should be exercised since there is no one correct map, and variations should be encouraged. A step-by-step student concept mapping guide for use in a typical introductory financial accounting course is provided at Global Perspectives on Accounting Education.2 Evaluation Tool – The new Association to Advance Collegiate Schools of
Business learning and teaching standards encourage active learning, student feedback, and direct assessment measures of learning. Concept mapping is suited to meet these challenges. Evaluation of constructing a map provides faculty with an observable record of what a student knows and allows for immediate feedback and analysis of how well a student demonstrates various learning concepts. Advantages of Concept Mapping Research shows that concept mapping enhances students’ thinking skills through meaningful learning activities, often by allowing students to relate new concepts and ideas to their previous knowledge base. The accounting profession requires students to think critically and adapt to dynamic business environments. The use of concept mapping in the classroom is one way to encourage students to develop these higher-order learning strategies that will prove useful in their future accounting careers. 1
http://gpae.bryant.edu/~gpae/vol2/04038%20Concept%20Mapping.pdf 2 http://gpae.bryant.edu/~gpae/Vol11/ Final%20Manuscript%20-%20Concept%20 Mapping.pdf Bruce A. Leauby, CPA, CMA, CFE, is an associate professor of accounting in the school of business at La Salle University in Philadelphia. He can be reached at leauby@lasalle.edu. Kristin N. Wentzel, PhD, is an associate professor of accounting in the school of business at La Salle University. She can be reached at wentzel@lasalle.edu. C. Andrew Lafond, CPA, DBA, is an assistant professor of accounting in the school of business at La Salle University. He can be reached at lafond@lasalle.edu.
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Emerging CPAs Decoding Master’s Degrees By Robyn Lawrence, PhD, CMA, Melissa Wright, JD, and David F. Salerno, CPA, PhD
W
hether you are planning additional education to complement your own career path, evaluating résumés as part of your company’s hiring process, or evaluating current employees for strategic deployment, understanding the distinctions among accounting-related master’s degree programs will promote better decisions. The master of business administration (MBA), the master of science in accounting (MSA), and the master of accountancy (MAcc) each targets different career paths for accounting professionals.
MBA An MBA education has a broad, entitywide focus that develops business leaders for guiding organizations in a dynamic, competitive, global environment. It draws applicants with varied business and nonbusiness backgrounds. Most MBA programs have core and elective courses. Core courses, required of all students in the program, may cover traditional areas of business, such as accounting, economics, finance, marketing, organizational behavior, legal issues in business, management information systems, and operations management, as well as, ethical decision making, sustainability, leadership, change management, supply chain management, innovation, and the global business environment. A capstone course will require students to synthesize cross-disciplinary business competencies and apply them to realworld situations. MBA programs that include elective courses have students select among various options to complete the credit requirements. Completing multiple courses in the same functional area, such as accounting, may constitute a concentration or specialization. Two variations on the traditional MBA are the Accelerated MBA and
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the Executive MBA. Accelerated MBA programs are intensive, full-time programs that typically take from 10 to 15 months to complete. Executive MBA programs target executives with significant professional experience who want to earn their MBA degree while remaining employed full-time. Executive MBA programs are generally part-time programs that take about two years to complete. MSA The MS degree represents a focused, in-depth education in a specialized
area. Thus, MSA programs emphasize accounting-related content, and most are designed to prepare students of accounting or nonaccounting educational backgrounds for careers specifically in accounting, as opposed to the more generalist approach of MBA programs. In addition to required courses appropriate for today’s accounting professionals, programs generally include three to nine credits of accounting electives that permit customization of the curriculum. Some programs offer specialized MS degrees such as an MS in Taxation or an MS in Forensic Accounting.
Gauging a Master’s Program Whether selecting a program to advance your career prospects or evaluating the educational background of others, certain characteristics should be considered that may indicate the fit, the quality, the skills and knowledge promoted, and the flexibility of the program. Below are 10 questions to ask when evaluating a master’s program. 1. Does the program match the goals (certification, upper management aspirations, retooling in accounting, or updating competencies)? 2. What is the quality of the program? Measures include the competencies and effectiveness of the faculty, educational resources available, reputation or ranking of the program, post-graduate placement, and, if appropriate, CPA Exam pass rate. 3. What are the program’s admissions requirements? 4. What is the total cash outlay to complete the program, including program and per-credit fees, background courses required, courses
Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
waived based upon professional experience or previous course work, and required commuting and travel? 5. What are the course options (required courses, electives, concentrations) within the program? 6. Does the program align with personal and work constraints (starting dates, course schedules – evenings, weekends, and summers – and online versus on-ground delivery)? 7. What support is available in the program for internships, job placement, professional development, and networking? 8. How long will it take to complete the program? 9. What are the requirements to remain in the program, such as minimum GPA, maximum time to complete the program, and continuous enrollment? 10. At what rate, and why, do students leave the program before completion?
Some schools offer MSA programs consisting of 60-70 credits that are designed for applicants seeking to refocus their professional development from a nonbusiness background to an accounting career. These are usually very aggressive programs designed for full-time students and take about two years to complete. MAcc The typical MAcc program focuses on topics that are most pertinent to the practice of accounting, and especially licensure as a CPA. MAcc programs are designed for applicants with an accounting educational background. Given the narrower focus of MAcc programs, there is a surprising variability in the characteristics of MAcc programs across schools. The proportion of required courses varies between programs, from half to all of the courses. Some MAcc programs provide opportunities for one or more specializations in areas such as forensic accounting, governmental accounting, or tax. Many of these programs are offered
on an accelerated basis, partially or completely online or part-time with flexible scheduling (including year-round short sessions). Some programs also make special accommodations for working accounting professionals, for example, by not scheduling classes during tax season. Online vs. Campus-Based An increasing number of programs are offered in the online format. The primary appeal of online courses is their convenience (anytime, anywhere) and the ability to bring together people from distant locations. Online courses also provide an opportunity to develop the ability to interact effectively online, which is an increasingly valuable skill. The campus-based, face-to-face classroom environment promotes the development of interpersonal skills, oral presentation skills, and thinking fast on one’s feet that can enhance prospects for personal and professional success. There tends to be more of a connection between participants in the physical classroom. In a properly managed classroom, the learn-
ing process includes more complete and immediate feedback between instructors and students. Finally, hybrid or “blended” courses or programs can incorporate the best of both delivery methods with some restrictions on the geographic dispersion of the students. Robyn Lawrence, PhD, CMA, is interim MBA director and associate professor of accounting at The Kania School of Management at the University of Scranton in Scranton. She can be reached at robyn.lawrence@scranton.edu. Melissa Wright, JD, is faculty specialist in business law and entrepreneurship program director at The Kania School of Management at the University of Scranton. She can be reached at melissa.wright@scranton.edu. David F. Salerno, CPA, PhD, is an associate professor of accounting at The Kania School of Management at the University of Scranton and serves as an MBA mentor to accounting graduate students. He can be reached at david.salerno@scranton.edu.
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Know Your Millennials By Michael A. Zaydon, CPA
Smartphone equipped with the latest social media and productivity apps
Casual dress code Laptop case for telecommuting
Strong work/life balance 7IYWEFPI GSǺII GYT XS save money and the planet
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Pennsylvania CPA Journal | Winter 2014 | www.picpa.org
T
he accounting industry is going through major chang-
es, and one of the biggest involves staffing. To achieve constant growth, firms must adapt to certain realities to retain the best talent – and that means appealing to millennials. Professional services firms, public accounting firms included, and their clients need to recognize that millennials are taking over the labor force. In 2015, millennials became the largest generation in the United States labor force.1 According to PwC’s NextGen: A Global Generational Study, almost 80 percent of its workforce is composed of millennials in 2016. Many firms may be struggling to attract and retain millennials. This struggle will adversely affect the quality of work and the ability to form and grow meaningful client relationships – two essential factors for long-term sustainability and profitability, no matter the firm size. As more baby boomers retire and millennials fill the empty seats, firms need to understand their changing workforce. “If businesses are not focused on millennials, they are at a competitive disadvantage,” according to Anne Donovan, human capital transformation leader at PwC. “There is a clear business case to have these discussions and to change the culture in the workplace to attract and retain millennial talent. Organizations that understand how much millennials matter are going to win.” A new generation is driving the bottom line. Now is the time to get to know the millennial workforce – who they are, what they value, and how they can add value to your firm and clients.
Contrast in “Starting Points” When baby boomers were first graduating from college, the typical view at the starting line of a career was likely very different from the millennial perspective. In general, a boomer’s mentality toward life and career was a linear and sequential one: first a job, then a spouse, then a house, maybe children, a few cars in the garage, and a steady rise in savings until it was time for retirement. Each life event came in a logical progression from the previous one, and it was not the norm for this generation of professionals to veer from this path. Compared with boomers, millennials begin making major financial decisions earlier in life. For example, at the age of 18 many are looking at the impact of financing college tuition. According to the U.S. Council of Economic Advisers, more millennials have at least a college degree than any other generation before them. Additionally, college enrollments have increased as higher education has become more accessible to lower-income and underrepresented minority students than ever before.4 Student loan debt, however, has hit unprecedented levels, surpassing $1 trillion in 2014, making it the second-largest category of household debt in the United States.5 Facing this reality, millennials aim for jobs that offer a salary that will help pay off the debt they incurred over the previous few years as well as an opportunity for growth and unique experiences. Differences with Other Generations Understanding generational differences is the first step firms must take to adapt to the changing face of their workforce. Consider how some of the following trends might impact your firm and its future. Whereas the baby boom generation followed a steady career and life progression, millennials are more likely to follow a less linear path to success – one with fits, starts, and detours with numerous employers, and one where they are less likely to sacrifice personal relationships and life’s opportunities for work. Marriage – As millennials graduate from college with little or no savings, there is a notable trend in delaying marriage and having a family when compared to their baby boomer counterparts.6 This trend is indicative of a shift in the timing of life events for the entire millennial cohort. Home – A highly correlated result of the millennial cohort entering adulthood during the throes of the “Great Recession” is that they are less likely to become homeowners as young adults than any other preceding generation. Millennials are more financially dependent on their parents than ever before. They do not have the financial means to make an investment in a home until later in their lives than historically observed. Furthermore, the continued influx of millennials into urban areas to start their professional careers will likely contribute to the trend of millennials being renters as opposed to homeowners for years to come.7
▲
Who Are the Millennials? It is important to understand the framework by which the millennial generation is shaped and defined. The Pew Research Center identified three factors that affect the attitudes and viewpoints of separate generations: age cycle, period effects, and cohort effects.2 The millennial generation, born between 1980 and 1995, is currently between the ages of 20 and 35. At this stage in their age cycle, millennials are still early in their careers and adult personal lives. The period effects – events, circumstances, and social forces impacting everyone in a population – that have influenced millennials are notable. Major period effects since 1980 include the rise of technology and the Internet, the Sept. 11, 2001, terrorist attacks, several U.S. wars in the Middle East, the financial markets crisis and resulting recession, and an ongoing threat to national and cyber security. Period effects impact all generations, but the socioeconomic influences of the past 35 years on this generation have shaped its
values and attitudes in a unique way compared with baby boomers, for example, who were at a different stage in their age cycle during this period. Cohort effects stem from period effects. Cohort effects influence an entire generation while it is at a certain point in its age cycle. According to the Pew Research Center, “Differences between generations can be the by-product of the unique historical circumstances that members of an age cohort experience, particularly when they are in the process of forming opinions.”3
Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
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Technology – Another key differentiator between millennials and generations before them is the pervasive use of technology in their lives. Millennials are the first generation to grow up with technology as an integral part of their lives from early childhood. Familiarity with technology facilitates efficiencies and lends itself to opportunities for flexibility. Successful firms will learn how to leverage technology not only to provide the best service they can to their clients, but also to allow their own people the flexibility they want. Pay Attention to Millennials A major cohort effect for millennials has been the near-constant economic uncertainty, including at least two major periods of recession in their lives. The actual, or perceived, lack of financial security that results from such periods has had a major effect on the earning, saving, and spending habits of millennials. One result of the economic uncertainty millennials faced during the financial crisis in 2008 was the rapid expansion of the “sharing economy,” where consumers forego or minimize ownership of things and instead rent or borrow from their peers. Millennials are on the leading edge of both sides of this economic phenomenon – either finding cheap alternatives to traditional consumerism or opportunities to make a few extra dollars “renting” out a spare room in their apartments, or using their personal car to pick up passengers one evening a week. The appeal of cheap and convenient access to specific products and services driven by mobile technology has also resulted in another effect: the growth of exciting and entrepreneurial jobs in the tech-driven start-up space. Professional services firms must be cognizant of the opportunities and threats from the growth of these companies and their appeal to millennials. As millennials continue to be attracted by the lifestyle and perks that come with securing a job in the tech space or at a start-up across the industry spectrum, professional services firms may be at a higher risk of experiencing low recruitment numbers and/or high turnover.
However, professional services firms that can stay ahead of this trend, adapt to the needs of their clients, and offer millennials the purpose, lifestyle, and incentives that they want will be better positioned for a sustainable future. Firms that fall behind will likely find it difficult to recruit and retain the much-needed talent to fill the gap of retiring baby boomers, putting their long-term viability at risk. Stay Ahead of the Trend The changing face of professional services, specifically public accounting, has many at their firms realizing the same thing: the old model – hiring a large number of recent graduates to see most of them leave the firm and only a few remain to eventually get promoted to partner – cannot be the acceptable norm if a firm is to sustain itself through the ongoing baby boomer retirements. Baby boomers, who have been more likely to show loyalty to the same firm and are more likely to make work lives a priority, are retiring out of the industry. The millennials who start their careers in the industry today have a very different outlook on what they expect to put in and get out of their jobs. In 2013, PwC, the University of Southern California, and the London Business School conducted the largest global generational study, NextGen: A Global Generational Study, to understand just how much the firm and its people’s priorities have changed. The study identified the attributes that make millennials a unique, yet sometimes similar, generation compared with those who came before them. Here are a few highlights of the study, some of the strategies PwC has taken to address issues identified, and how these same issues can be addressed by other organizations: • 71 percent of PwC millennials say that their work demands interfere with their personal lives, while 63 percent of nonmillennial employees had the same response.8 Millennials do not want to sacrifice their personal lives for excessive work demands, even if they can reasonably expect
Differences with Other Generations
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Marriage Marriage
Home Home
Technology
Delayed
Rent > Own
Can’t Get Enough
Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
substantial compensation later in their careers. The majority of respondents shares the same sentiment regarding this topic. Increasingly, the work/life balance is a key measure of job satisfaction. • More than 60 percent of millennials would like to occasionally work from home and shift their work hours.9 Technology’s role in this data point is undeniable. With some of the most advanced technological resources at their disposal, millennials are equally as concerned that the work gets done, however they want more flexibility when it comes to where and when they do their work. • 41 percent of millennials prefer to be rewarded or recognized for their work at least monthly, whereas only 30 percent of nonmillennials would prefer the same level of frequency.10 Millennials thrive on teams where they feel a sense of purpose and community. This feeling comes from openness with peers and transparency from their superiors. As millennials are part of the instant gratification age, they want and need real-time feedback to facilitate their own growth. PwC has shifted its annual review process from performance feedback forms to real-time “snapshots” of performance based on a specific framework for the skills and behaviors each staff level needs to display to be performing within expectations. This new model opens the door for constant face-to-face coaching, feedback, and development.11 • 96 percent of millennials want to talk face-to-face about their career plans and progression, which is nearly identical to the 95 percent of nonmillennials.12 Contrary to an often-held misconception, millennials actually want to look up from their phones and get out from behind their laptops when it comes to talking about their careers. • All generations say compensation is an important driver for retention, but millennials place a higher relative value on being supported and appreciated for their contributions than their nonmillennial counterparts.13 This dichotomy illustrates that millennials simply are not content with just having a high-paying job. Millennials want to see purpose in what they do, and know that their efforts
are adding value to their personal lives just as much as to their clients and employers. Understand and Grow As more data becomes available about the millennial generation, organizations will need to adapt to changing trends. One unavoidable trend is that millennials will be stepping into positions of management and influence that baby boomers once occupied. When firms understand their people, they are in a better position to develop and grow talent. Growth is the key to profitability and innovation, both of which are the fuel to the accounting industry’s sustainable future – a future that will be driven by the millennial generation. 1
Pew Research Center, “Millennials Surpass Gen Xers as the Largest Generation in U.S. Labor Force,” May 11, 2015, page 1. 2 Pew Research Center, “Whys and Hows of Generations Research,” Sept. 3, 2015, page 3. 3 Ibid., page 4. 4 Council of Economic Advisers, 15 Economic Facts about Millennials, Oct. 2014, pages 12 and 16. 5 Ibid. 6 PwC, NextGen: A Global Generational Study, 2013, page 6. 7 15 Economic Facts about Millennials, page 37-41. 8 NextGen: A Global Generational Study, page 8. 9 Ibid. 10 Ibid. 11 PwC, Engaging and Empowering Millennials, 2014, page 4. 12 NextGen: A Global Generational Study, page 9. 13 Ibid. Michael A. Zaydon, CPA, is a senior associate in the private equity specialist group at PwC in New York, and a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at michael.zaydon@pwc.com.
Nonmillennial (born before 1980)
Millennial (born 1980-1995)
Transactional needs are more dominant.
Social needs are more dominant.
• Control over work • Development opportunities • Pay satisfaction
• Team cohesion • Supervisor support & appreciation • Flexibility
Michael A. Zaydon, CPA
Source: PwC
Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
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Cloud
Computing Security and Risk Management By Peter J. Kaye, CPA, and Robert G. Korbeck Jr.
I
n
today’s
technology-dependent
business
world, finance professionals are constantly look-
ing to develop lower-cost alternatives for the information technology (IT) infrastructures of their companies. For years, they managed very costly on-site servers, equipment, and software, along with sufficient IT staff to maintain a seamless operation. Now, many companies are shifting some or all of the on-site functionality to “the cloud.” For auditors and finance professionals a switch to the cloud has implications, particularly in maintaining the security and privacy of confidential and sensitive corporate records, and those of our customers. This article examines how to ensure viability and controls when working with cloud service providers.
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Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
What Is the Cloud? In computing terms, the cloud can be defined as the process of using network access to ubiq-
uitous, readily available, interconnected remote servers in order to process information rather than using dedicated, on-site, physical servers or computers. Some erroneously consider the cloud to encompass anything that is accessed outside of one’s own computer or network; but this is typically just Internet access, not the cloud. There is a difference between what is the cloud and what is simply remote information. There are, according to cloud computing terms, a variety of cloud infrastructures, in-
cluding private cloud infrastructures, public cloud services, and hybrid cloud services. Private cloud infrastructures distinguish themselves through the establishment of processes dedicated and controlled for a single organization. Conversely, public cloud services have multiple clients accessing and processing information through a shared pool of servers across a common public network. A third type of deployment model, hybrid cloud services, are composed of a combination of private and public or multiple public cloud providers bound together through technology that enables mixed security-model applications and cloud data transport between the numerous cloud infrastructures. An example of this could be storage of higher-level sensitive data in a private cloud setting, while the Web front end sits in a public cloudhosted infrastructure. Beyond the “accessibility” of private and public cloud deployments, there should be a consideration of the scope of services being delivered. For the most direct control, infrastructure as a
but awareness and risk assessment are crucial to any consideration of outsourcing in-house processes to the cloud, and should be conducted prior to any implementation. What Are the Implications? Say you have been tasked by your board of directors and senior management with assessing the risks and benefits of transferring your company’s IT infrastructure from the server room to the cloud. What are the key risks that you must be aware of and be prepared to mitigate? First, to the extent your company manages personally identifiable information (PII), you must be aware of, and abide by, state laws governing the management of such information. You need to know where the servers reside, as not all states are consistent with how PII is to be managed. Second, will your service provider use a subcontractor (also known as a subservice provider)? If so, where will that provider’s servers be located? What technologies are the providers and subservice providers us-
While significant benefits can be realized by shifting your in-house database to the cloud, there are also significant risks that must be understood and remediated effectively. service (IaaS) is a delivery model whereby a cloud service supplier provides the infrastructure of servers for computing, storage, and network access for the client. The client has control over the development of applications, processes, and security within the servers. By comparison, platform as a service (PaaS) offers both the infrastructure and the development and deployment environment for applications. The client maintains the development, testing, and change-control process, but the mechanisms for both development and deployment are controlled within the PaaS delivery structure. This simplifies the client’s responsibility to developing and deploying their applications while infrastructure-support activities, such as patching and monitoring, are provided as an outsourced service. The least client-controlled model is the software as a service (SaaS) delivery model. This option consists of all underlying solutions of infrastructure and the development and operation platform provided within the offering, leaving the client to simply administer the configuration of the software they are operating, without concern regarding the underlying support structures. As with any emerging technology solution, benefits may also come with inherent, perceived, and real risks. Among the largest benefits are reduced capital expenditures for in-house infrastructure, scalability of solutions and costs based on a “per drink” basis, and the accessibility of information based on far-reaching network access. On the flip side, the main risks inherent in this infrastructure are the large target assumed by grouped data and shared client responsibilities (breach of one customer’s data allows access for further data incursion attempts); reduced visibility on operations, security controls, and information security processes; and a lack of control regarding information transferability under issues of vendor resilience or proprietary software usage. There are process steps that can be taken to mitigate these risks,
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Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
ing, and is this technology consistent with yours and up to date? It is absolutely critical that you and your IT teams work closely with the service providers to ensure a seamless transfer of all data from your in-house servers to the provider’s cloud-based servers. Given you are introducing new technologies (cloud), architecture, and systems, you will want to consider the possible need to reorganize or restructure your in-house company data prior to transfer to the cloud. Since the underlying controls at the service provider’s facilities have relevance over the internal controls over your financial reporting, an audit of these controls is required. Alternatively, if you are performing this assessment for your accounting firm, you have other rules and regulations to follow as promulgated by the AICPA Code of Professional Conduct and the Internal Revenue Code (IRC). Rule 301 of the AICPA Code of Professional Conduct and IRC Section 7216 require CPAs to protect their clients’ confidential information and prohibit the unauthorized release and/or disclosure of client information. If confidential information is breached, there are federal and state regulations that may apply, as well as state board of accountancy rules to abide by. If a CPA outsources the IT function to a cloud service provider, he or she is not relieved of the responsibility to safeguard the confidential information. Whether you are a CPA protecting your clients’ data and information or you’re a CFO safeguarding your company’s and clients’ data, there are steps you need to take in assessing the viability of the cloud service providers you are considering. Note that if you use a cloud service provider, the services are classified as a data center; therefore, their services are subject to Statement on Standards for Attestation Engagements No. 16 (SSAE 16), Reporting on Controls at a Service Organization. The first step you need to take is obtaining an annual SSAE 16 report from the service provider, and possibly from any and all subservice providers
as well. Also, perform an assessment of whether the provider has reasonable controls in place to prevent an unauthorized release of confidential information, and assess the financial viability of the provider. Does it have knowledge of applicable regulations and laws, such as the FTC Safeguards Rule, the Red Flags Rule, and the privacy requirements of the Gramm-Leach-Bliley Act and Health Insurance Portability and Accountability Act? Also, obtain a copy of their service organization control (SOC) reports issued under the guidance of SSAE 16 or other similar framework, such as ISO/IEC 27001:2013 and ISO/IEC 27002:2013. There are three types of SOC reports: SOC 1, SOC 2, and SOC 3. SOC 1 (Report on Controls at a Service Organization Relevant to User Entities’ Internal Control over Financial Reporting) is specifically intended to meet the needs of user entities’ management and their auditors as they evaluate the effect of the controls at the service organization on the user entities’ financial statement assertions. SOC 2 is the Report on Controls at a Service Organization Relevant to Security, Availability, Processing Integrity, Confidentiality and/or Privacy, and SOC 3 is the Trust Services Report for Service Organization. The SOC 3 report is designed to meet the needs of users who want assurance on the controls at a service organization related to security, availability, processing integrity, confidentiality, or privacy, but do not need the level of detail provided in a SOC 2 report. These reports are general-use reports and can be freely distributed or posted on a website as a seal. A checklist of considerations when selecting a cloud vendor is provided in the article “Professional Liability Risks Related to Cloud Computing,” published by the AICPA Professional Liability Insurance program. It is strongly recommended that you retain documentation of the diligence procedures performed, the results obtained, and the CPA’s evaluation of the vendor. You should also perform initial and subsequent periodic evaluations to confirm the initial assessment, such as obtaining and reviewing SOC reports annually. Another major consideration is cost. While you may save significant costs in eliminating or reducing in-house servers, a data room, and staff to manage and maintain such systems, you will incur SSAE 16 audit fees that can be anywhere from $15,000 to several hundred thousand dollars, depending on the number of service centers used and the number and complexity of the controls you stipulate for audit. Mitigation Strategies As mentioned, there are risks and responsibilities associated with your use or your supplier’s use of cloud technologies. There are, however, mitigation strategies related to this technology, including considerations before any cloud services are in place. First, related to the risks of unauthorized procurement and operation of cloud activity within your organization, you should establish cloud usage policies and information on the procedures related to cloud service infrastructures (such as what sensitivity level of information can be stored in cloud architectures). Having a policy in place provides risk management against rogue entities from engaging in cloud services outside of authorized channels, and establishes minimum criteria involved in the infrastructure of authorized services. Second, with cloud service providers limiting the visibility of their internal control and security structure, clients need to assess
the suppliers’ security controls and score it against their own risk appetite and security standards. For instance, clients that use SaaS cloud services are not in control of the software development change-control process that a supplier implements, and so clients should evaluate the supplier’s software development life cycle processes to ensure that key security gates are in place. Controls related to incident management, systems availability, monitoring, and resilience also should be considered as the service contract, service-level agreements, or third-party audit (see SOC reports above) provide the only assurance to these critical availability controls being in place and effective. The best time for this assessment process is before implementing services with any supplier, and clients should ensure that a right to audit or an ongoing assessment during the provisions of services exists, at least annually. Since a cloud provider operates through virtual, remotely located systems, two aspects of data storage are relevant: the laws and regulations applicable to the information based on the data location, as well as the contractual requirements that the participating organization has with their own clients. Some cloud providers are able to either delineate at a country level where their customers’ data resides, or can identify the laws and regulations that apply to the data they house. This provides a manner to confirm that an organization is not at contract-risk based on commitments in their own client contracts. Alternatively, an organization can limit the information that they distribute to the cloud provider, especially if limitations are delineated based on the sensitivity level of the information, such as restricted information that must remain in local country systems. Conclusion Whether you are a CPA looking to the cloud to support the storage needs of your clients’ data or you are the CFO of a company, significant consideration needs to be given to the myriad issues inherent in any conversion to a cloud-based system. While significant benefits can be realized by shifting your in-house database to the cloud, there are also significant risks that must be understood and remediated effectively. Understanding who your service provider is, where the data will be housed, and having all SSAE 16 reports in hand will help you ensure that you are mitigating these risks as effectively as possible. Since the underlying controls at the service provider’s facilities have relevance over the internal controls over your financial reporting, it is critical that we, as CPAs, do our homework to ensure data integrity through the conversion and thereafter. Peter J. Kaye, CPA
Peter J. Kaye, CPA, most recently was a senior manager in corporate finance and operations for Accenture in King of Prussia and is a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at peter.j.kaye@verizon.net. Robert G. Korbeck Jr. is global platform manager and information security lead for Accenture’s procurement-as-a-service offering in King of Prussia. He can be reached at robert.g.korbeck.jr@accenture.com.
Robert G. Korbeck Jr.
Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
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2015 CPA-PAC Contributors
PICPA NEWS
The PICPA thanks everyone who contributed to the CPA-PAC in 2015, and we welcome your continued support of PICPA’s advocacy efforts. Your collective help was invaluable in reaching total contributions of more than $197,000. Listed here are the firms and individuals who contributed $100 or more to the CPA-PAC. Help us grow the 4 percent of membership who contribute, and go to www.picpa.org/advocate/cpa-pac. Your support is critical to the success of PICPA’s advocacy initiatives.
2015 CPA-PAC Firm Contributors* Platinum ($10,000 and above) Baker Tilly Virchow Krause LLP Deloitte LLP Ernst & Young LLP
KPMG LLP PricewaterhouseCoopers LLP
Gold ($5,000 to $9,999) CliftonLarsonAllen LLP
Reinsel Kuntz Lesher LLP
Silver ($1,000 - $4,999) Barbacane, Thornton & Company LLP Boyer & Ritter CPAs Brinker Simpson & Company LLC Campbell, Rappold & Yurasits LLP
Drucker & Scaccetti Friedman LLP Kreischer Miller Kronick Kalada Berdy & Co. PC
Maher Duessel Stephano Slack LLC Urish Popeck & Co. LLC Walz Group LLC
Wipfli LLP
Bronze ($500 - $999) Arnett Carbis Toothman LLP Brown Schultz Sheridan & Fritz
Buckno Lisicky & Company Hutchinson, Gillahan & Freeh PC
McClure & Wolf LLP Merves Amon & Barsz LLC
Pellini Gold Cordes LLC
*State law prohibits the acceptance of corporate checks. All such contributions are deposited into the PEC-CPA for educational purposes. LLP checks are acceptable. All contributions are voluntary.
2015 CPA-PAC Individual Contributors Keystone Club ($500 and above) Robert M. Barbacane Diane DeCesare Bruce W. Braunewell David P. Duessel Stephen W. Christian Bernard A. Fagnani Matthew J. Claeys Cheri H. Freeh
Timothy C. Hilbert Elizabeth Krisher William R. Lazor Jerry J. Maginnis
Timothy J. Morgus John A. O’Toole Tracy L. Rash Charles M. Shechtman
Kenneth L. Urish Michael A. Valucci James D. Watson Judith A. Welde
President’s Club ($250 - $499) David M. Duffus Joseph A. Aldcowski Kim Duffy-Wylam Rick G. Bair Merlin R. Dunkelberger Jr. Pamela W. Baker Jeffrey L. Ferro Jason C. Barnes Andrew E. Finkle Peter R. Barsz Michael S. Frey Kathy Bell Brian M. Gabriel David J. Bolton Nicolas D. Glorieux Todd R. Boslau Timothy J. Gooch Debra K. Bowes Barry D. Groebel James M. Brower Jr. Lawrence J. Hahn Gene M. Buckno James E. Hall Andrea L. Caladie Gregory L. Hardy David C. Capitano Danielle M. Hawley Robert J. Ciaruffoli Jr. Stephen R. Horvat Ivan Cilik Kenneth N. Hugendubler Albert G. Deana
Jason A. Jacobs David M. Jacobson Benjamin T. Jarmul Jr. James C. Jarrett H. P. Kelly Jr. Dennis R. Kennedy Paul D. Kinmartin Jr. William G. Koch Sr. Craig A. Koryak George C. Kotridis Jeffrey M. Krull Steven N. Kutsuflakis Jacob L. Kutz Karen C. Larsen James S. Lawson Brian Lenart
Chris Loftus Peter J. Loftus Michael C. Malinoski Jill A. Martin Donna M. Massanova Fred L. Massanova Michael Mathisen Paul A. Mavrinac William P. McGowan Anthony J. Mitchell III M. Kent Moorhead Charles J. Morgan Kervin R. Myer Lisa A. Myers John P. Nealon Robert E. Newcomer
Glenn S. Newman Andrew W. Nichols James W. Nowoswiat Steven D. Orndorf Bernadette A. O’Toole David S. Owens Paul W. Pocalyko Steven Pressman Robert J. Radics John J. Reynolds Lisa A. Ritter A. Stephen Rosa Mark J. Ross Kevin J. Rudd Philip J. Santarelli Joseph C. Sassa
John W. Schilthuis Dennis J. Shusman Timothy J. Simmons Robert A. Simon Jeffrey C. Skumin Rowland M. Smith Jeffrey J. Spengler Thomas J. Taricani Brett H. Tennis John J. Vozniak Jeffrey J. Vrabel Thomas W. Walenchok Jonathan L. Zeigler Timothy M. Zimmerman David D. Zinkler
Century Club ($100 - $249) Frances A. Aitken Robert J. DePasquale Joseph M. Alu Anthony R. Deutsch William P. Balchunis Randal R. Dietz Jeffrey S. Berdahl James A. Dinsmore Paul Berdy Deborah A. Eastwood Michael D. Byrnes Diane E. Edelstein David A. Caplan Eli T. Elias Jr. Anthony R. Caravaggio Lewis E. Elicker Tara L. Connor Mario J. Ercolani Nicholas J. Crocetti Karen C. Facer-Mee John M. Dagnon William G. Finnecy Harvey Danowitz Robert F. Firely Jr. Roger J. Davis Paul D. Fisher
Richard H. Flowers Thomas H. Flowers James R. Foutz William Fromel Jon M. Gascoine Steven J. Geisenberger Mitchell Gerstein Arthur J. Granito Clayton E. Gregg Yelena Guber James R. Heasley Dale F. Hoffman William R. Hoffmann
Richard C. Hogentogler Michael F. Johns Paul J. Kelly III Timothy A. Kershner Kara S. Kessinger Joseph P. Kirkwood Jr. Richard J. Kitay Timothy C. Klimchock Donald M. Kronick Ernest H. Lawrence Andrew Lee Jonathan S. Levin John J. Macurak
Rep. John A. Maher Stephen M. Mayer Jeffrey W. McCabe Padraic D. McGrath Matthew D. Melinson Stephen A. Merves Kevin M. Mitchell James J. Newhard Theodore T. Nguyen John T. Pagerly Ji Young Park Eric C. Peterson Lea Ann S. Plessinger
David E. Priest Charles E. Rauker Jr. Dawn P. Rosoff Ryan J. Santarella Mark H. Strausbaugh Howard B. Stredler Heidi K. Turley Ronald H. Ulitchney Jr. Lori F. Weinberger-Reiner
The PICPA and the CPA-PAC also thank the more than 700 individuals in the profession who made contributions up to $99. To view the names of all these contributors, go to www.picpa.org/advocate/cpa-pac and click on Contributors.
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Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
Behold the gr eat ro tunda!
your Meet with senator...
...or y our re prese ntati ve.
En ter he re
Be the Voice of Reason in Harrisburg Get an insider’s view on the latest budget and tax proposals from state legislators, PICPA committee representatives, and the PICPA Government Relations team.
Day on the H ll | June 8, 2016 The PICPA will schedule an individual meeting with your legislator. Three CPE Credits Exclusive Member BeneďŹ t Register at www.picpa.org/doth
8985/16
Legislative News
PICPA NEWS
Department of Revenue Clarifies UE Deduction Issues As part of the Refund Fraud Project launched in early 2014, the Pennsylvania Department of Revenue (DOR) embarked on an aggressive enforcement posture as it relates to taxpayers claiming unreimbursed business expenses (UE) on their personal income tax returns. Most taxpayers and many tax practitioners across the state were unaware of this change in enforcement last year until they started receiving notices that unilaterally denied the claims. In response, the PICPA Committee on State Taxation and our partners in the state legislature, led by Rep. Bill Adolph (R-Delaware), met with Eileen McNulty, Pennsylvania Secretary of Revenue, and her team to discuss the process and make sure it is more equitable for all parties. As a result of those discussions and numerous meetings, the department provided the PICPA with an update on the changes that it has made, particularly a requirement that taxpayers provide a copy of an employer letter when they file PA-40 Schedule UE. Here are tips for filing Schedule UE: • Include detailed documentation for each line item at the time the return is filed. Examples of proper documentation can be found at www.revenue.pa.gov. • Documentation should clarify unreimbursed expense responsibilities. Letters from employers should identify whether or not an employee is required to incur the expenses to perform the duties of the position and if there is any reimbursement of the expenses. In lieu of a letter from the employer, the department will accept a copy of the employer’s expense reimbursement policy or a signed affidavit. • If mileage is reimbursed by an employer, but at a rate less than the federal rate, it should not be claimed as UE. The difference is not a deductible expense.
36
• Pennsylvania does not follow IRS rules for per-diem expenses. If a taxpayer receives reimbursement for any expenses where the reimbursement is based upon a perdiem rate or fixed dollar amount, the expense is not allowable and should not be included on Schedule UE. • Commuting expenses are not deductible in Pennsylvania. Commuting expenses, including mileage to and from work and parking expenses, are not allowable. For tradesmen, commuting expenses include the mileage expense to and from any job site not more than 35 miles from the closer of the union hall or the taxpayer’s home to the job site. • Review REV-637 for a list of common unallowable expenses. It is an extensive list. The most common errors include claiming dues and subscriptions for professional organizations or magazines, and cable or Internet costs. • Cell phones may be claimed, but only for business purposes. Cell phone expenses claimed should be limited to calls made for business purposes when required by an employer. The employee should maintain the type of cell phone coverage that is reasonably related to the needs of the employer’s business, and the unreimbursed expense amount claimed must be reasonably calculated so as to not exceed expenses the employee actually incurred in maintaining the cell phone. Monthly phone bills may be requested. Costs for family plans, bundles, or for additional lines are not reimbursable. • Include breakdowns of all miscellaneous expenses. Many tax software programs are not supplying a breakdown of the miscellaneous expenses if there are more than
Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
two items. If the software supports PDF attachments, include the breakdown via that method. If software doesn’t support PDF attachments, fax the information to the department. • A separate Schedule UE is necessary for each taxpayer. Spouses cannot file and report their expenses on a single PA Schedule UE. Taxpayers working for multiple employers – and not working out of a union hall (the only exception to this rule) – must also provide separate schedules to report expenses. Excess expenses for one employer are not deductible against the income received from a second employer. Additionally, for tax year 2015, the DOR will expand its systemic review of personal income tax expense deductions to include examination of PA-40 Schedule C expenses. This is in addition to the unreimbursed employee business expenses and incorrectly reported wages or withholding from W-2s that were the primary focus of review last tax year. In cases where the department believes expenses may have been erroneously reported or claimed, it will contact taxpayers to request additional supporting information before tax examiners make any adjustments. Taxpayers and practitioners may see an increase in correspondence from the department related to these claims. The PICPA fully respects the department’s statutory authority to enforce Pennsylvania’s tax laws, but this must be done in an effective and efficient manner that does not infringe on the rights of Pennsylvania taxpayers or tax practitioners’ ability to represent the interests of their clients. The PICPA will continue to work with the department on refining aspects of its UE enforcement policy.
2016 Nominations Report
PICPA NEWS
Dear PICPA Members, The Nominations Committee met on Nov. 24, 2015, and Jan. 25, 2016, and, in accordance with Article VI, Section 4, of the PICPA Bylaws, is pleased to nominate the candidates below for election to the offices shown. Elections will be held June 22, 2016, in accordance with Article IX of the PICPA Bylaws, at PICPA’s 119th Annual CPA Convention at El Conquistador, A Waldorf Astoria Resort, in Fajardo, Puerto Rico. 2015-2016 Nominations Committee Members Michael F. De Stefano, chair Robert F. Firely Jr. Karen L. Benson Elizabeth Krisher Romey D. Fagnano Jerry J. Maginnis
Paul A. Mavrinac William M. Sadecky Jr. Stephen J. Scherf
Officers
Council Members
President Lisa A. Myers* Boyer & Ritter CPAs Camp Hill
(Two-year term expiring in 2018)
President-Elect Joseph E. Seibert KPMG LLP Harrisburg Vice President Stephen W. Christian Kreischer Miller Horsham Vice President Valerie Trott Williams Duquesne University Pittsburgh Treasurer Martin C. Levin Regan Levin Bloss Brown & Savchak PC Allentown * Lisa A. Myers was elected president-elect in 2015 to serve as 2016-2017 PICPA president; Julius C. Green, 2015-2016 PICPA president, will serve as immediate past president.
Board of Directors (Two-year term expiring in 2018)
Xi (Jessica) Chen Deloitte LLP Philadelphia John H. S. Craley Jr. Reinsel Kuntz Lesher LLP Wyomissing Shawn P. Emerson McGill Power Bell & Associates LLP Erie
Adanma C. Akujieze Weis Markets Inc. Sunbury Timothy J. Gooch Baker Tilly Virchow Krause LLP Wellsboro Jacob P. Habel Penn United Technology Inc. Saxonburg James E. Hall Evoqua Water Technologies LLC Warrendale
James B. Slater Evelyn A. Williams
Committee on Professional Ethics Members
Trustee of Scholarship Fund
(Three-year term expiring in 2019)
(Five-year term expiring in 2021)
Edward D. Coleman KPMG LLP Philadelphia
Gail R. Hauseman Berkshire CPAs LLC Reading
Diane E. Edelstein Maher Duessel Pittsburgh
AICPA Council** (Three-year term expiring in 2019)
Kelly M. Godfrey Reinsel Kuntz Lesher LLP Wyomissing
Mitchell K. McKenney Buckler McKenney & Nadzadi PC Monroeville
Michael F. Johns CliftonLarsonAllen LLP Plymouth Meeting
André N. McMillan University of Delaware Newark, Del.
Melissa M. Wolf Baker Tilly Virchow Krause LLP Wilkes-Barre
Jason C. Skrinak Reinsel Kuntz Lesher LLP Harrisburg
Lisa A. Myers Boyer & Ritter CPAs Camp Hill **Selected by the PICPA Nominations Committee, subject to election by AICPA Council in October 2016.
Michelle L. Ward MW Group LLC Royersford
New Members of the Nominations Committee Article V of the PICPA Bylaws states that the Nominations Committee shall consist of 11 active members, with three members being elected each year for a three-year term. Two members shall be the two most recent immediate past presidents, who are Julius C. Green and Jerry J. Maginnis. Members of the committee are recommended by the Executive Committee, nominated by Council, and elected by the members in accordance with Article IX of the PICPA Bylaws. Stephen J. Scherf was designated to be chair by the current president, Julius C. Green.
(Three-year term expiring in 2019)
Cynthia J. Chisarick Wilkes University Wilkes-Barre Michelle L. Peterson Improved Dwellings for Altoona Inc. Altoona Thomas J. Rennie Rennie & Associates CPAs Ligonier
Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
37
PICPA’s March & April Professional Education
Register today at www.picpa.org/course.
See a full list of what’s coming up at www.picpa.org/course.
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Topics These courses may qualify for IRS, CFP, CLU, ChFC, CFM, CMA, or Pennsylvania insurance license credits. Check individual course descriptions online for details. These courses qualify for ethics CPE credits in Pennsylvania. For a full list of ethics seminars and information, go to www.picpa.org/ethicsseminars. These courses may qualify for Yellow Book CPE credits. Determinations of the courses that qualify for the Yellow Book 24-hour requirement are made on an auditor-specific basis depending on the auditor’s Yellow Book clients.
A&A
Accounting & Auditing
ETH
Ethics
FR
Fraud & Forensic Accounting
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TEC
Technology
Unless otherwise noted, all courses begin at 8:00 a.m. and conclude at 4:00 p.m. (check in at 7:30 a.m.) View discussion leaders, descriptions, prerequisites, and levels at www.picpa.org/course.
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CREDITS
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Cranberry
3/23
Challenges for the CFO, Controller, and Financial Executive
705003
8-Other
$245/345
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3/24
Ethics, Principles, Case Studies, and Fraud
800089
8-Ethics
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ETH
3/30
From Hiring to Firing and Everything in Between: Legal, Tax, and Health Care Issues
724602
6-Other; 2-Tax
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3/31
Buying and Selling a Business: Critical Tax and Structuring Issues
732702
8-Tax
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TAX
4/21
Financial Leadership 2016
653603
8-Other
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MGT
4/26
Budgeting and Forecasting Tools and Techniques
638903
4-A&A; 4-Other
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4/27
Excel Financial Reporting and Analysis
658404
8-A&A
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4/27
A Practical Guide to Small-Business Health Insurance and Fringe Benefits: 2015 and Beyond
732505
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4/28
The Complete Guide to Payroll Taxes and 1099 Issues
552804
8-Tax
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MGT
A&A TEC TAX TAX
Harrisburg
3/24
Analyzing Financial Statements, Including Techniques for Cash Flow Analysis
731303
8-A&A
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3/30
Financial Leadership 2016
653602
8-Other
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4/25
Deceptive Revenue Recognition and Other Accounting Techniques - Recognizing the Warning Signs
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8-A&A
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741600
8-A&A
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A&A
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Rapid Fire Issues in Accounting & Auditing
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The Complete Guide to Payroll Taxes and 1099 Issues
552803
8-Tax
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3/22
A Practical Guide to Small-Business Health Insurance and Fringe Benefits: 2015 and Beyond
732504
8-Tax
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3/24
Excel Financial Reporting and Analysis
658403
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TEC
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Financial Leadership 2016
653601
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MGT
4/20
Key Financial and Economic Issues Facing the Financial Executive
716201
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A&A Hot Topics
657710
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800091
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800092
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4/29
Time: 12:30-4:00 p.m. (Check in: 12:00 p.m.)
4/29
PICPA Ethics Update for CPAs in Business and Industry Time: 8:00-11:30 a.m. (Check in: 7:30 a.m.)
4/29
PICPA Ethics Update for CPAs in Business and Industry and A&A Hot Topics
TAX
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Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
NOTE
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COURSE TITLE
COURSE NO.
CREDITS
FEE*
741400
4-A&A
$119/169
741500
4-A&A
$119/169
738502
8-Other
$269/369
TOPIC
NOTE
Philadelphia
3/22
Analytical Procedures Workshop Time: 8:00 - 11:30 a.m. (Check in: 7:30 a.m.)
3/22
Deceptive Accounting Practices Time: 12:30-4:00 p.m. (Check in: 12:00 p.m.)
Business Continuity: Best Practices for Managing the Risks
3/23
A&A A&A TEC
4/20
From Hiring to Firing and Everything in Between: Legal, Tax, and Health Care Issues
724603
6-Other; 2-Tax
$245/345
4/21
Advanced Excel
624003
4-A&A; 4-Other
$269/369
Ethics: Leadership and Tone at the Top
800090
8-Ethics
$245/345
ETH
3/30
Managing Change
656300
8-Other
$269/369
MGT
4/21
Buying and Selling a Business: Critical Tax and Structuring Issues
732703
8-Tax
$245/345
TAX
4/22
Excel Best Practices
724103
8-Other
$269/369
TEC
4/25
Dr. Ray's Review of Accounting Standards for Controllers and Finance Professionals
612005
8-A&A
$219/319
800093
2-Ethics
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MGT TEC
Summerdale
4/19 Trevose
A&A
Webinars
3/22
Ethics: Critical Thinking for the CFO, Controller, and Industry Accountant
ETH
Time: 9:00-11:00 a.m.
3/23
Excel Reporting: Charts for Nonfinancial Audience
EX141W-032316
2-Other
$79/104
CL118W-032816
2-Other
$79/104
TUAI-032916
2-Tax
$89/114
BLAW-040116
8-Other
$219/319
CL121W-040416
2-Other
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Tax Update for Accountants in Industry Time: 1:00-3:00 p.m.
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Excel Reporting: Creating KPI Dashboards Time: 11:00 a.m.-1:00 p.m.
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Understanding and Implementing the New Revenue Recognition Standard
TEC TEC TAX MGT TEC MGT TEC A&A
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Member Spotlight
PICPA NEWS
Pavel Kolenda, CPA Audit Supervisor RSM US LLP PICPA member since 2008
His first major motorcycle journey was with a friend through Vietnam, Cambodia, and Thailand in 2013. Kolenda, being an experienced rider, had to teach his friend how to operate a motorcycle in the parking lot of the rental company. He remembers the owner watching them with an anxious look on his face. Luckily, the motorcycle was returned in one piece. They chose to take the journey through that part of the world because they felt that it would be less touristy, giving them the opportunity to get a genuine view of the countries and
Imagine yourself riding along a desert highway on a motorcycle in the middle of a thunderstorm. There is no shelter and nothing around you for miles. The only thing you can see in front of your face is a curtain of rain, illuminated by lightning bolts touching down every 10 seconds. A feeling of impending doom comes over you. All you can do is keep going. Sounds like something out of a movie, right? Well, it really happened to Pavel Kolenda and his cousin as they rode through Bonneville Salt Flats in Utah during a cross-county ride in the summer of 2015. Kolenda, an audit supervisor with RSM US LLP in Philadelphia, is an avid traveler with a special place in his heart for traveling via motorcycle. He explains that when you travel by car or by plane you generally only get one of your senses moved, and you are limited to only what you can see from behind a window. When you travel by Kolenda preparing to ride on the Bonneville Salt Flats. motorcycle, the experience is much more impactful. As you ride along a field of flowers, you immerse themselves in the culture. smell them instantly. If you are riding Kolenda remembers being in awe ridthrough a desert in extreme heat and ing through landscapes that appeared then you go through a mountain pass, untouched, almost the same as they you feel the cool air refreshing you. He were a thousand years ago. “It’s stagbelieves being able to experience travel gering how beautiful it is,” he explains. with all of your senses leaves very Kolenda’s second big motorcycle deep memories. journey was across the United States Kolenda grew up around motorthis past summer. He recalls thinking cycles. Both of his grandfathers and his that the United States is such a vast, father had them. He had one as well beautiful place, full of interesting locagrowing up in Poland that he rode back tions, and that he had seen so little of and forth to high school. it in his eight years living here. A road “I always joke that I don’t have a trip across the continent, for him, was heart, I have a single-cylinder engine the ultimate way of seeing the beauty pumping my blood,” Kolenda says. of the country he now calls home.
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Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
Though it is hard to choose, Kolenda says that Grand Teton National Park was his favorite spot along his journey. Grand Teton is a beautiful mountain range right below Yellowstone National Park. He recalls numerous hiking trails being nearly deserted, making him feel more connected to nature. Kolenda decided that he wanted to add more meaning to the trip by incorporating a charitable element. So he and his cousin decided to raise money for UNICEF along the way. They did this by posting challenges on social media. For example, one of his friends challenged him to get up on stage in Nashville and sing a country song for $50. They road about 8,000 miles in a little over four weeks and raised $550 for their cause. The CPA in him chose UNICEF because it has a low overhead percentage, making sure that the bulk of their donations go toward the children they support. For Kolenda, being a traveler is comparable to his everyday life. As a traveler he loves meeting new people and getting to know their individual stories. He values their companionship and forms friendships without any preconceived notions. He takes the same approach in his professional life as a CPA. “I treat my clients as my travel buddies,” he says. “We enter a journey together, and the only way we can arrive at our destination is if we understand and respect each other.” As a professional, he has also faced challenges – thankfully none as life-threatening as the challenge in Bonneville Salt Flats. And like traveling through a storm, you regroup and continue going. Eventually you get to your goal, and you are really happy you didn’t stop.
PICPA NEWS
Image Enhancement
The Many Ways We Promote the CPA’s Image Research done by the AICPA1 consistently shows that CPAs are among the most respected professionals around. It’s a wonderful position to be in, but there’s always more that can be done to promote the profession to entrepreneurs, consumers, and key decision makers. Our CPA Image Enhancement Committee routinely tries new things to elevate the status of CPAs in Pennsylvania, and the PICPA regularly reaches out to reporters to let them know about our efforts. The outreach, in fact, has resulted in 90 media calls, 8 op-ed pieces, and more than 4 million impressions2 since May 1, 2015.
debt. This is yet another way for us to offer information and insight from CPAs to website visitors, no matter their skill level. At press time, nearly 200 people have completed the quiz.
Small Business Center Individual consumers aren’t the only audience for which the PICPA has created materials. We also have a robust small-business center. Videos,
resources find the quality information compiled and reviewed by our members. For the last quarter of 2015, we had 30,000 unique visitors to our consumer section, and nearly 14,000 views of our blog posts. Popular blog posts include “Bonus Tax Trap” and “Listen to the Story Your Financial Statements Are Telling You.” In addition, our members answered dozens of questions submitted to our Ask a CPA service, which garnered more than 2,500 views in the fourth quarter. The hot Ask a CPA questions have been focused on budgeting as well as the tax issues that arise when people live in one state but work in another.
Newsletter, E-mail, Videos Our quarterly Money & Life Newsletter goes out to hundreds of libraries across Pennsylvania. Through this effort, more than 2,500 library patrons are exposed to information and guidance from CPAs on a number of timely topics. Recent issues Member Marsha Rubin (r) leads a Women’s Opportuhave focused on retirement, college nity Resource Center program on retirement planning. loan debt, an update on the Affordable Care Act, and, of course, tax. In addition to the print version, we have blog posts, articles, and brochures a corresponding e-newsletter that also are available to help everyone from a focuses on the quarterly topics, but first-time business owner to a seabecause it is sent out monthly it can soned entrepreneur. New materials are delve more deeply into these complex constantly being created or updated as financial issues. the business world evolves. When the The PICPA creates a complementary AICPA created the new “preparations” suite of materials for each quarter’s financial statement offering, the PICPA theme. Everything from videos to was quick to incorporate the change PowerPoint presentations are housed into its financial statements brochure, together on relevant topic pages within Understanding Preparations, Compilaour website’s consumer section. tions, Reviews, and Audits. Additionally, If you’ve found yourself on PICPA’s when new legislation was passed that consumer page recently, you may have affected mercantile tax, we created noticed a new addition: the Financial an entirely new brochure, A Guide to Literacy Quiz. Hoping to capitalize on Pennsylvania Business Privilege and the current popular trend of Internet Mercantile Taxes. quizzes, we’ve created an interacDigital (Google AdWords) tive way for visitors to the site to test The PICPA is also capitalizing on their financial knowledge. As users search-engine optimization and usgo through the six-question quiz, they ing Google AdWords to ensure that test their financial knowledge of issues interested parties looking for financial such as retirement, budgeting, and
Join In The PICPA always has a number of options available if you’d like to help enhance the image of CPAs. We have no-obligation opportunities for everyone, no matter where your strengths lie. For those who love public speaking, we have opportunities to present financial literacy programs in front of students, Girl and Boy Scout troops, library patrons, and community groups. If writing and research are how you prefer to engage, being the author for an Ask a CPA question or penning an opinion piece for a local business journal might be the right fit for you. If you’re looking to quickly boost your name recognition and do some self-promotion, volunteering for one of the many media calls we receive may be a mutually beneficial experience. For more information on how you can get involved, e-mail communications@picpa.org. 1
www.aicpa.org/Research/CPAHorizons2025/DownloadableDocuments/ cpa-horizons-report-web.pdf#page=22 2 An impression is a public relations measurement used to calculate an item’s circulation in the media as well as the number of online views.
Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
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Member Recognitions
PICPA NEWS
CPAs Add to Success in Many Ways CPAs, it is widely known, play a crucial role in providing sound business advice. When people think “sound business advice,” they often think taxes, balance sheets, and financial planning. CPAs, as PICPA members show time and again, are also experts on more subtle – though no less important – areas of business success. Here is how some shared their knowledge. In Lehigh Valley Business, Cynthia R. Bergvall, Greater Philadelphia Chap-
ter, and David W. Stonesifer, Reading Chapter, were quoted in “Firms Overhaul Culture to Land, Retain, Advance CPAs.” Minakshi Khanna, South Central Chapter, authored “Diversity in Workplace: Progress Made, but Challenges Continue” for the Central Penn Business Journal. Maureen H. Thomson, Lehigh Valley Chapter, authored “Safeguards, and Culture, Help to Prevent Employee
Theft” for Lehigh Valley Business. Matthew M. McNelis, Northeastern Chapter, provided updates related to the Affordable Care Act to smallbusiness owners as part of a cooperative program with the Small Business Development Center and the Health Care Advisory Council. Kimbarley A. Williams, South Central Chapter, wrote “These 5 HR Mistakes Can Cost Your Firm Big Bucks” in the Central Penn Business Journal.
Promotions BKD LLP: Casandra LindenMallory N. White, Greater credit union services. berger, Erie Chapter, was named Philadelphia Chapter, was Philadelphia Department senior associate II. made a senior, public secof Revenue: Francis E. Breslin, Brown Schultz Sheridan & tor. Ryan J. Santarella, Greater Philadelphia Chapter, Fritz: James R. Barcheski and Greater Philadelphia Chapwas promoted to Revenue Lauren E. Fulmer, both of South ter, was named a manager, Commissioner. Kelly A. Brian T. McCall Central Chapter, rose to senior health care. Reinsel Kuntz Lesher LLP: Chambers staff accountants. Concannon, Miller & Ruthann J. Woll, Reading ChapCatanese Group: Gregory A. Co.: Anthony J. Buss, ter, was promoted to principal. Smith and Sean D. Wonderling, Lehigh Valley Chapter, was Steven M. Frank, Kelly M. Godfrey, Amy L. Strouse, and both of Central Chapter, were named senior manager in Joshua L. Weiss, all of Reading promoted to tax managers. Jesthe McDonald’s division. Chapter, were named managers. sica M. Dunlap, Central Chapter, Jane M. Spradlin, Lehigh James A. Jennifer G. Savran Benson LLP: Michael was promoted to audit manager. Valley Chapter, is now seGante Sr. Nelson A. Casey, Greater Philadelphia CliftonLarsonAllen: James nior manager in the smallChapter, was made partner. D. Watson, Greater Philadelphia business division. Ryan P. Simon Lever LLP: Jason D. Chapter, was named managHintenach, Lehigh Valley McDougall, South Central Chaping principal of the Philadelphia Chapter, is manager in the ter, rose to managing partner. office. Seth Brody and Timosmall-business division. Marlin E. Benedict, South Centhy J. Crouch, both of Greater Dunlap & Associates tral Chapter, who was managing Philadelphia Chapter, were made PC: Clinton Clevenstine, Krista M. Stephen L. Gardner Snyder partner for 27 years, was named principals, health care. Kevin Greater Philadelphia senior executive partner. J. Mullin, Greater Philadelphia Chapter, was promoted Smith Elliott Kearns & ComChapter, is now engagement dito senior accountant in pany LLC: Denver R. Martin, rector, manufacturing and distrithe accounting services South Central Chapter, was bution. Jennifer A. Feist-Johns, department. promoted to manager. Greater Philadelphia Chapter, Hill Barth & King LLC: Stambaugh Ness PC: Kelly was made manager, commercial Sean R. Kocan, Pittsburgh Jeffrey W. Kent Ruthann J. Woll A. Chambers, James A. Gante services. Mary Jo Hughes and Chapter, was elevated to Sr., Krista M. Gardner, Jennifer Jaimie M. Mann, both of Greater principal. G. Nelson, and Stephen L. Snyder, all Philadelphia Chapter, were each Maher Duessel: Jeffrey W. Kent of South Central Chapter, were added promoted to accounting manager, and Brian T. McCall, both of Pittsto the firm’s leadership as principals. commercial services. Jessica Fitzgerburgh Chapter, were named partners. Thomas J. Moul, South Central Chapald and Richard J. Karuschkat, both Padden Guerrini & Associates ter, was named leader of the firm’s of Greater Philadelphia Chapter, were PC: Derek S. Holjes, South Central strategic tax advisory practice. each elevated to senior, health care. Chapter, was promoted to manager of
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Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
Member Recognitions
PICPA NEWS Experts in the Field
“County Council Weighs 2016 Budget with Tuesday Vote Looming.” Ann Marie Renze, Erie Chapter, was mentioned in a write-up about her employer, Scott Enterprises. Herald Standard: Bryan S. Kisiel, Southwestern Chapter, was quoted in “Start the New Year on Right Financial Foot.” Lehigh Valley Business: Susan D. Jarvis, Lehigh Valley Chapter, authored “Think Like a Large Business when Paying Vendors.” Jack W. Long Jr., Reading Chapter, was quoted in “Dealing with Charities: When to Say Yes, How to Say No.” John D. Rossi III, Lehigh Valley Chapter, authored “New Stan-
dard Results in Major Changes in Accounting.” E. Patrick Rush Jr., Lehigh Valley Chapter, authored “Congress Gives More than 20 Tax Gifts to Small Businesses.” Evelyn A. Williams, Lehigh Valley Chapter, authored “Find the Financial Statement that Fits Your Business’ Needs.” Pittsburgh Business Times: Patrick F. Gowaty, Pittsburgh Chapter, was featured in “Banking on Business in Any Climate.” John R. McMurtry, Pittsburgh Chapter, was quoted in “KFMR Joins List of Acquired Accounting Firms.” The Tax Adviser: William G. Finnecy, Erie Chapter, authored “Capital Con
Associated Press: Jeffrey S. Berdahl, Lehigh Valley Chapter, was quoted in “Big Break: Small Businesses Looking for Annual Tax Deductions.” BusinessWoman PA: Colleen S. Krcelich, Lehigh Valley Chapter, authored “Taking the Entrepreneurial Leap.” Central Penn Business Journal: Francis D. Morris, South Central Chapter, authored “Business Valuation Is Part of Being Prepared.” GoErie.com: Charles G. Knight III, Erie Chapter, was highlighted in the Mover of the Week feature. Joseph P. Maloney, Erie Chapter, was quoted in
PICPA Members Serving on AICPA Committees The PICPA recognizes its members who contribute their time to represent Pennsylvania’s CPAs on a national level. PICPA Member
AICPA Committee(s)
PICPA Member
AICPA Committee(s)
Dawn C. Anderson
Council – Elected Member
Robert A. Lavenberg
Council – Elected Member at Large
Barry M. Berkowitz
Board of Examiners
Jerry J. Maginnis
Robert C. Bezgin
Peer Review Board Oversight Task Force
AICPA Foundation Board of Trustees; Council – Elected Member
Matthew E. Bogusch
Information Management and Technology Assurance Executive Committee
Steven J. Mazur
Employee Benefit Plans Audit Quality Center Executive Committee
Jeffrey M. Buchakjian
Certified in Financial Forensics Credential Committee; Forensic and Litigation Services Damages Task Force
Mark G. Metzler
Joint Trial Board
Lisa A. Myers
Designated Council Representative for One Year
Roland J. O’Brien
Practice Monitoring Task Force for Employee Benefit Plans
Joseph C. O’Neill
Tax Practice Responsibilities Committee
David M. Pianta
Council – Elected Member
Patrick T. Pruitt
Gaming Revenue Recognition Task Force
Gary Roland
AICPA Business Combinations Task Force
Mark J. Ross
Health Care Expert Panel; Health Care Revenue Recognition Task Force
Edward P. Caine
Council – Elected Member at Large
Stephen W. Christian
Board of Directors
Nicholas J. Crocetti
Council – Elected Member
David M. Duffus
Forensic and Litigation Services Damages Task Force
Diane E. Edelstein
Practice Monitoring Task Force for Single Audits
Robert F. Firely Jr.
Council – Elected Member; Practice Advisory Group
Cheri H. Freeh
IRS Advocacy and Relations Committee
Edward R. Friel
Independence-Behavioral Standards Subcommittee
Julius C. Green
Council – Elected Member
Susan E.S. Howe
Member Retirement Committee
Kenneth N. Hugendubler
AICPA/National Association of Insurance Commissioners Task Force
John J. Kaschak
Philip J. Santarelli
Financial Reporting Executive Committee
Jeffrey C. Skumin
Depository Institutions Expert Panel
David A. Torrillo
Employee Benefit Plans Expert Panel
Heather I. Trower
Peer Review Board Standards Task Force; Technical Reviewers Advisory Task Force
John J. Walsh
Assurance Services Executive Committee Emerging Assurance Technologies Task Force – Audit Data Analysis Working Group
Government Performance and Accountability Committee
Torpey J. White
Certified Information Technology Professional Credential Committee
Kara S. Kessinger
Personal Financial Specialist Credential Committee
Richard E. Wortmann
Elizabeth E. Krisher
Exempt Organizations Taxation Technical Resource Panel
Associations Task Force; National Peer Review Committee; Quality Control Materials Task Force
Michael D. Colgan, CEO and executive director of the PICPA, will serve on the Uniform Accountancy Act Committee.
Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
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Member Recognitions struction Funds Program Offers Unique Funding Opportunity for Marine Fleet Owners.” Times-Tribune: William R. Lazor, Northeastern Chapter, shared his insight in “Despite Budget Stalemate Wolf Finds Ways to Preserve Tax Credit.” WPVI-TV: Scott A. Isdaner, Greater Philadelphia Chapter, was interviewed for the story “Tax Benefits of Year-End Charitable Giving.” WWDB-AM: Susanne Spinell Shuster, Greater Philadelphia Chapter, was interviewed during the Marketing of Business show. York Daily Record: David A. Welber, South Central Chapter, was quoted in “How to Spend Less and Save More in the New Year.”
Public Speakers
Emergency Management Agency in Nesquehoning. Francis G. Peiffer, Lehigh Valley Chapter, presented a program on money called “What’s in Your Pocket?” at Delran (N.J.) High School and Pine Run Community Center in Doylestown. Scott Rubinsky, Greater Philadelphia Chapter, participated in State Rep. Pamela DeLissio’s Financial Health Fair. Robert B. Simpson, Greater Philadelphia Chapter, presented “Financial Planning for Life” at the DuPont Chestnut Run facility. Dana Trexler Smith, Greater Philadelphia Chapter, visited Gladwyne Elementary School’s fifth-grade class and taught them about fraud investigations. The following members worked with local Girl Scout troops so the girls could achieve various financial literacy badges:
Kerri N. Bogda, South Central Chapter, gave a presentation about the Form 990 Schedule H and final IRS rules on community health needs assessments at a conference sponsored by the Healthcare Financial Management Association. Kimberly A. Boyle, Greater Philadelphia Chapter, presented a financial literacy program to a second-grade class at Benjamin Comegys Elementary School. Lesley F. Katz, Jennifer L. Romberger, Marsha M. Rubin, and Mark B. Zinman, all of Greater Philadelphia Chapter, participated in the Women’s Opportunities Resource Center retirement seminar. The program’s mission is to help women learn ways to close the retirement income gap. Kristen M. McCabe and Catharine H. Packett, both of Greater Philadelphia Chapter, presented “QuickBooks for Small Business” in conjunction with the Small Business Development Council of Delaware County and SCORE. John M. Nonnemacher, Northeastern Chapter, spoke on financial safeguards at the Carbon County
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PICPA NEWS
Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
• Judith L. Hoar, South Central Chapter • Stephen H. Klunk, South Central Chapter • Trudie E. Kozar, Southwestern Chapter • Kelly H. Little, South Central Chapter • Samuel A. Monastra, Greater Philadelphia Chapter • Diane M. Ridenour, South Central Chapter • Alonna L. Whittle, Greater Philadelphia Chapter • LaDawn D. Yesho, Southwestern Chapter The following Greater Philadelphia Chapter members participated in the “Connect” program at Haverford High School: Curtis A. Farrow, Anthony J. Mitchell III, and Samuel A. Monastra.
Exclusive PICPA Member Discounts Look for the icon and see how you can save money on... Professional Education • Insurance • Technology Services • Office Supplies • Business Services • Tax and Accounting Books • Business Attire • CPA Exam Prep Courses
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PICPA NEWS Appointments & Elections
the Associated Alumni of Central High School of Philadelphia. Gerald P. Plush, Boston, was elected director of the Federal Home Loan Bank of Pittsburgh. Robert J. Pomante, Greater Philadelphia Chapter, was elected president of Llanerch Country Club in Havertown. Robert B. Simpson, Greater Philadelphia Chapter, was elected to the Delaware County Historical Society’s board of directors.
New Hires BBD LLC: Steven M. Glueck, Greater Philadelphia Chapter, was hired as partner, not-for-profit group. BKD LLP: William J. Winter, Pittsburgh Chapter, was named a tax manager. Steven Ganley, Pittsburgh Chapter, was named an associate. Black Bashor & Porsch LLP: Norbert
F. Dietrich Jr., Northwestern Chapter, joined the firm as an audit manager. Brown Schultz Sheridan & Fritz: Katherine E. Stravinskas, South Central Chapter, was named a senior staff accountant. Donald R. Wilson, South Central Chapter, was named an audit staff accountant. CohnReznick: Bernadette M. Daniel, Greater Philadelphia Chapter, joined the firm as a tax partner. Concannon, Miller & Co.: E. Patrick Rush Jr., Lehigh Valley Chapter, was hired as a senior tax manager. Duane Morris LLP: Gregory G. Smith, Greater Philadelphia Chapter, joined the firm’s tax accounting group. Hill International: Paul W. Pocalyko, Greater Philadelphia Chapter, was hired as senior vice president with the firm’s construction claims group. Horovitz, Rudoy & Roteman LLC:
Douglas L. Berman, South Central Chapter, was named chair of the 20162017 York County Economic Alliance board of directors. Kerri N. Bogda, South Central Chapter, agreed to serve on the finance committee for Court Appointed Special Advocates of Lancaster County. Richard C. Coyne, Greater Philadelphia Chapter, was named chair of the Princeton Regional Chamber of Commerce board of directors. Richard J. Ferst, Greater Philadelphia Chapter, was named a trustee of the Madlyn and Leonard Abramson Center for Jewish Life. Jennifer K. Forsythe, South Central Chapter, is treasurer of the York County Children’s Advocacy Center. Bruce S. Marks, Greater Philadelphia Chapter, was elected treasurer of
Member Recognitions
INTRODUCING THE CGMA PROGRAM DISCOVER A LIFELONG PROFESSIONAL LEARNING JOURNEY AT CGMA.org/Program ®
CGMA, CHARTERED GLOBAL MANAGEMENT ACCOUNTANT, and the CGMA logo are trademarks of the Association of International Certified Professional Accountants. These trademarks are registered in the United States and in other countries. 18348-326
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A Future
PICPA NEWS Kieran A. J. O’Dea, Pittsburgh Chapter, joined as an accounting and auditing partner. Kenaunee Scientific Corporation: Thomas D. Hull, Statesville, N.C., was hired as vice president of finance and CFO. Louis Plung & Co. LLP: Cynthia Taylor, Pittsburgh Chapter, was named an audit manager. Members 1st Federal Credit Union: Jessica L. Whitmyer, South Central Chapter, was named vice president of finance and controller. Pennsylvania Trust Company: Tara R. Hedlund, Greater Philadelphia Chapter, was hired as senior vice president. Reinsel Kuntz Lesher: Jason C. Skrinak, South Central Chapter, was named state and local tax practice leader. Daniel J. Nickischer, Reading Chapter, was hired to the small-business services group. Schneider Downs: Adam R. Spitznagel, Pittsburgh Chapter, joined the firm’s tax advisory services practice as a senior manager. Siegfried Group: Eric G. Cirulli, Greater Philadelphia Chapter, was hired as a senior associate. Temple University Fox School of Business: Cory Ng, Greater Philadelphia Chapter, was named assistant professor of instruction in accounting. Umbreit, Korengel & Associates Inc.: Kathleen A. Wileczek, Greater Philadelphia Chapter, joined the firm as a principal.
Awards & Designations Christina Altomare, Greater Philadelphia Chapter, was named to the National Multiple Sclerosis Society’s 2015 MS Leaders Circle. Travis C. Fox, Northwestern Chapter, earned the certified specialist in estate planning designation from the National Institute for Excellence in Professional Education. Philadelphia Business Journal named William S. George and Donald J. Smolenski, both of Greater Philadelphia Chapter, to its 2015 list of Most
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BEHIND EHIND Every Scholarship
Become a Friend of the Scholarship Fund Over the past decade, the PICPA Scholarship Fund has awarded more than $2.3 million to deserving accounting students. As a Friend of the Scholarship Fund, your firm can build a pipeline of qualified CPAs and support the future of the accounting profession. Contributing organizations will receive recognition in the Pennsylvania CPA Journal and at www.picpa.org.
I can’t thank the PICPA enough for enabling me to turn a dream into reality.”
Tony LaFratte From West Chester University to PwC
Donation Levels $25,000 Platinum
$15,000 Gold
$10,000 Silver
$5,000 Bronze
Select your donation level, and we’ll follow up to establish a donation schedule that works for you.
With a contribution of at least $15,000, you can designate scholarship awards for schools of your choice. All gifts may be payable up to a five-year period. Name Company Phone E-mail
Mail: PICPA Scholarship Fund Ten Penn Center 1801 Market Street, Suite 2400 Philadelphia, PA 19103-2099
Fax: (215) 496-9212 E-mail: frobbins@picpa.org
Visit www.picpa.org/donate to make an individual contribution.
Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
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Member Recognitions
PICPA NEWS Admired CEOs. The publication also named Linda M. Barron and Renae T. Flanders, both of Greater Philadelphia Chapter, Women of Distinction. Steven D. Lubart, South Central Chapter, is the 2015 recipient of the Edward M. Messner Inspiring Business Award. LeRoy L. Metz II, Pittsburgh Chapter, was honored with a Diamond Award by the Pittsburgh Business Times for business leadership. Daniel H. Mink and Christopher A. Winemiller, both of South Central Chapter, earned their certified construction industry financial professional designations from the Construction Financial Management Association. Joseph P. Nicola Jr. and Robert P. Overbaugh, both of Pittsburgh Chapter, were named to the Pittsburgh Business Times Who’s Who in Energy 201516 in the finance/accounting section. Bruce A. Palmer, Lehigh Valley Chapter, was honored by Historic Bethlehem Museum & Sites for his dedication to the mission and success of the organization. Robert E. Ribic Jr., South Central Chapter, was chosen a “Local Financial
Leader” in the central Pennsylvania area. He achieved this through a peerdriven survey conducted by Harrisburg Magazine in conjunction with the Financial Planning Association of Central Pennsylvania and the Estate Planning Council of Central Pennsylvania. Francis X. Ryan, South Central Chapter, was awarded the Lifetime Achievement Award as part of the Central Penn Business Journal’s 2015 Financial Executive of the Year Awards. The following Pittsburgh Chapter members were named winners in their categories for the Pittsburgh Business Times CFO of the Year awards for 2015: • Walter B. Fowler Jr. – Nonprofit/ Government Large • Todd R. Lindemuth – For-Profit, Extra Large • Steven Rossi – For-Profit, Medium • Victor D. Son Jr. – For-Profit, Small The following Pittsburgh Chapter members (unless otherwise noted) were finalists in their categories at the awards: • Linda K. Barsevich – Nonprofit, Large
PICPA NEWS Mergers & Acquisitions Local Pittsburgh CPA firm is looking to acquire or merge with area firm with revenues not exceeding $1 million. Reply to file #840. Retiring in a few years? I’m a new accountant with plans to eventually have my own practice. If you’re a Lancaster-area CPA interested in easing into retirement as you gradually hand over the reins to a buyer, we need to talk. Reply to file #850. Practices for Sale. Pennsylvania - Gross revenues shown: Montgomery County tax, $912K; Lehigh Valley tax and accounting, $410K; Central PA CPA, $440K; Southwest PA tax,
• James R. Gill – Nonprofit, Large • Thomas J. LaVelle – For-Profit, Small • James D. Turco, Southwestern Chapter – Nonprofit, Large
Obituaries Frank J. Concannon, Greater Philadelphia Chapter, died Nov. 30, 2015. He cofounded the Allentown accounting firm of Concannon, Gallagher, Miller & Co., and was the senior partner until 1981. He joined the PICPA in 1954. William S. Fitzpatrick, Saint John, Fla., died Jan. 8. He served at both BDO and Deloitte as an internal tax accountant. He joined the PICPA in 2002. Bruce W. Koch, Greater Philadelphia Chapter, died Jan. 26. He was the chief financial officer at Starr Restaurants. He joined the PICPA in 1980. Robert H. Rosen, Greater Philadelphia Chapter, died Nov. 10, 2015. He was a partner with Klatzkin & Company LLP for four decades. He joined the PICPA in 1968. More on Members For more member recognitions, go to www.picpa.org/journal.
Classifieds $75K; Cumberland County tax, $28K. Call (888) 847-1040, ext. 2, or holmes@apsleader.com. The Pennsylvania CPA Journal accepts classified ads for Mergers & Acquisitions and Office Space. Search for jobs, post a résumé, or place job-related ads online at our Career Center. Check it out at www.picpa.org/careers.
dŚĞ ĐůĂƐƐŝĮ ĞĚ ĂĚ ƌĂƚĞ ŝƐ Ψϳϱ ƉĞƌ ŝŶƐĞƌƟ ŽŶ ĨŽƌ ŵĞŵďĞƌƐ͕ ΨϭϱϬ ĨŽƌ ŶŽŶŵĞŵďĞƌƐ͕ ĨŽƌ ƵƉ ƚŽ ϰϬ ǁŽƌĚƐ͘ ĚǀĞƌƟ ƐĞƌƐ ǁŝůů ďĞ ĂƐƐŝŐŶĞĚ Ă Į ůĞ ŶƵŵďĞƌ ŝĨ ƚŚĞLJ ǁŝƐŚ ƚŽ ƌĞŵĂŝŶ ĂŶŽŶLJŵŽƵƐ͕ ĂŶĚ ƚŚĞ W/ W ǁŝůů ĨŽƌǁĂƌĚ ƌĞƉůŝĞƐ ĐŽŶĮ ĚĞŶƟ ĂůůLJ͘ dŽ ƉůĂĐĞ ĂŶ ĂĚ͕ ĐŽŶƚĂĐƚ ƚŚĞ ŵĂŶĂŐŝŶŐ ĞĚŝƚŽƌ Ăƚ ũŽƵƌŶĂůΛƉŝĐƉĂ͘ŽƌŐ Žƌ ;ϴϴϴͿ ϮϳϮͲϮϬϬϭ͘ dŚĞ ƐƵŵŵĞƌ ϮϬϭϲ ĚĞĂĚůŝŶĞ ŝƐ DĂLJ ϭ͕ ϮϬϭϲ͘ tŚĞŶ ƌĞƉůLJŝŶŐ ƚŽ Ă Į ůĞ ŶƵŵďĞƌ͕ ĂĚĚƌĞƐƐ LJŽƵƌ ĐŽƌƌĞƐƉŽŶĚĞŶĐĞ ƚŽ &ŝůĞ ηͺͺͺ͕ ĐͬŽ W/ W ͕ dĞŶ WĞŶŶ ĞŶƚĞƌ͕ ϭϴϬϭ DĂƌŬĞƚ ^ƚ͕͘ ^ƵŝƚĞ ϮϰϬϬ͕ WŚŝůĂĚĞůƉŚŝĂ͕ WĂ͕͘ ϭϵϭϬϯ͘
Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
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What Do You Think? Progress of Women on the March
I
know it is busy season for many of our members, but female members, we also need to recognize that the did you know this month is also when we celebrate the accounting profession has a long way to go. PICPA’s firm accomplishments of women? Yes, March is Women’s culture white paper, which can be found at www.picpa.org/ History Month. For several years the PICPA has focused firmculture, addresses this issue in the section, “Are Women resources on highlighting and promoting diversity within the Leaning Out Instead of In?” Our research shows that there accounting profession, and our diversity includes not only is clearly a need for more leadership cultivation among minority ethnicities, but also women. It’s a difficult time of female employees. If you take a look at your firm leadership, year to plan recognitions, but I thought I’d share some of does this research bear out? As firms continue to struggle what the PICPA is doing to honor our female members. I with succession planning, it is important to remember that hope you won’t be too busy to take the opportunity to honor colleges are continuing to provide a significant number of the women in your life. female accounting majors (PICPA student membership is Our blog, CPA 48 percent feNow, serves as male). To support the stage this your firm’s future month to highsuccess, women light women’s are clearly going achievements, to need to play their perspectives an important on client service, role in your their technical succession knowledge, and plans. Follow the PICPA blog, CPA Now, as well as our social media channels to learn more their role as I am glad industry leaders. about how we are highlighting Women’s History Month. to say that Throughout despite the March, you will hear from the first female PICPA president, struggles there has been progress: for the first time the Susan E. S. Howe, as well as Lisa Myers, PICPA’s incoming U.S. leaders of two of the Big Four accounting firms are president. You’ll also find an interview with a young female women. The AICPA has dedicated resources to its Women partner named Heather N. Hilliard, and learn how she and in the Profession member section, including a LinkedIn Group the firm work together so she can meet client and family and Leadership Summit. The PICPA has also scheduled an obligations. If you’re thinking of providing more tools so staff Annual Women’s Conference for the past several years. can work from home, CPA Now will also feature Allison Mark your calendars for May 11, 2016, to hear our keynote O’Kelly, the CEO of Mom Corps Inc., who provides some speaker Jane Scaccetti, successful leader of the prominent valuable tips on how to efficiently work from home. CPA firm Drucker & Scaccetti PC, discuss women in leaderFemale members will also be offering numerous tips to ship. Also this spring, take advantage of the opportunity the public during the month. We have videos and articles to recognize many of the profession’s women leaders by that address homeownership, education credits, retirement participating in the PICPA Chapter Annual Meetings, where planning, and small-business issues. These offerings will be both female and male chapter leadership and volunteers will shared across our social media channels to reach consumers be recognized. and highlight our female experts. Look for #WomenOfPICPA While in the thick of busy season, on Twitter for lots of great information. I recognize that it’s a tough time to Speaking of social media, I hope you not only follow do any long-term planning. But I hope us on Twitter, but also Facebook and LinkedIn. If you do, that you take some time now, and you already have access to some of the fun busy-season in the future, to think about how you giveaways that we have been offering. Expect those to be are nurturing everyone at your firm pushed up a notch in March. So take a breather and visit us. or organization to reach their highest There may be some sweet rewards for your effort. potential. As much as we celebrate the success of many PICPA What do you think are the most successful strategies for promoting women’s success in your organization? Share your thoughts with Michael D. Colgan, CAE, CEO and executive director of the PICPA, at mcolgan@picpa.org.
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Pennsylvania CPA Journal | Spring 2016 | www.picpa.org
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